Candlestick charts are one of best candlestick patterns forex exchange most powerful technical analysis tools in the trader’s toolkit. They are also one of the most prevalent. Most technical analysis programs use candlesticks as the default mode of charting. Used correctly, candlesticks can give a signal in advance of much other market action.
They can be a leading indicator of market activity. But familiarity doesn’t necessarily breed expertise. There are perhaps more than 100 individual candlesticks and candlestick patterns. This is a daunting amount of information for a trader to understand and apply. As with most things, some candlestick patterns are more useful than others. Here, we will take a look at some of the most viable for stock traders. These are candlestick patterns that experience shows have the most relevance to making consistently profitable trading decisions.
Used correctly, they should increase the accuracy of your predictions. For those not familiar with the details of candlestick charting, it’s important to go over the fundamentals. If the candle is green or white, it means the lower extreme is defined by the opening price and that the stock’s price rose during the period being charted. If the candle is red or black, then the lower extreme identifies the closing price, and the stock fell during the period. Candles may be created for any time period: Monthly, weekly, hourly or even a minute. About the Author Bramesh Bhandari is a proficient stock trader at Indian stock market.
He also provides online tutoring on technical analysis to traders. There are many candlestick patterns but only a few are actually worth knowing. Here are 10 candlestick patterns worth looking for. Remember that these patterns are only useful when you understand what is happening in each pattern. They must be combined with other forms of technical analysis to really be useful. For example, when you see one of these patterns on the daily chart, move down to the hourly chart. Does the hourly chart agree with your expectations on the daily chart?
If so, then the odds of a reversal increase. The following patterns are divided into two parts: Bullish patterns and bearish patterns. Want to take a course that teaches you all the common candlestick patterns, shows you the backtesting for each pattern, and then puts it all together into a complete trading system? Engulfing This is my all time favorite candlestick pattern. This pattern consists of two candles.
The first day is a narrow range candle that closes down for the day. The sellers are still in control of the stock but because it is a narrow range candle and volatility is low, the sellers are not very aggressive. The second day is a wide range candle that “engulfs” the body of the first candle and closes near the top of the range. Hammer As discussed on the previous page, the stock opened, then at some point the sellers took control of the stock and pushed it lower. By the end of the day, the buyers won and had enough strength to close the stock at the top of the range.
Hammers can develop after a cluster of stop loss orders are hit. That’s when professional traders come in to grab shares at a lower price. Harami When you see this pattern the first thing that comes to mind is that the momentum preceding it has stopped. On the first day you see a wide range candle that closes near the bottom of the range. The sellers are still in control of this stock.