10 best candlestick patterns to trade the markets

Candlestick patterns are important tools in technical trading. Understanding them allows traders to interpret potential market trends and make decisions based on those inferences. re are several types of candlestick patterns that can indicate bullish or bearish movements. This article will briefly talk about what candlestick patterns are and introduce the top 10 formations all traders need to know to trade the markets with ease.

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What are candlestick patterns?

A candle is a single bar that represents the movement of the price of a particular asset during a specific period of time. information displayed includes the open, high, low, and close for that time period.

Candlestick designs allow one or more candlesticks to assist technical traders in developing inferences about future movements. and underlying asset pricing carals. se are displayed graphically on a chart, which is used for market analysis. Our guide to reading candlestick charts is an excellent starting point for learning how to interpret candles for trading.

Candlestick patterns can be bullish or bearish

To recognize and apply the most commonly used candlestick patterns to a trading strategy, traders must understand how the slope of these patterns can affect the direction of the market (trend). tables below summarize the two main categories of price movement that candles can indicate. Many of these carals appear in our top 10 list below.

Bullish candlestick patterns:

Candlestick motif

Address

Morning Star

Bullish (reversal)

Bullish Engulfing

Bullish (reversal)

Doji

Bullish / Bearish (Indecision)

Hammer

Bullish (reversal)

Bullish Harami

Bullish (reversal)

Piercing caral

Bullish (reversal)

Inside the bars

Bullish (continued)

long highlights

Bullish / bearish (reversal)

Bearish Candle Pattern:

Candlestick motif

Address

Evening star

Bearish (reversal)

Bearish Engulfing

Bearish (reversal)

Doji

Bearish / Bullish (indecision)

Bearish harami

Bearish (reversal)

Dark cloud cover

Bearish (reversal)

Inside the bars

Bearish / Bullish (continued)

long highlights

Bearish / Bullish (reversal)

Shooting Star

Bearish (reversal)

Top 10 Candlestick Patterns Traders Should Know

1 – NIGHT STAR AND MORNING STAR

  • evening and morning star candlestick patterns occur at the end of ascending / descending trends respectively and tend to indicate reversal patterns.
  • names derive from the star-shaped formation of the arrangement.
  • As you can see in the image below, the first candle is in the direction of the trend, followed by a bullish or bearish candle with a small body. third candle is viewed in the reversal direction, ideally closing past the middle of the first candle.
  • Trading this candlestick pattern will require a confirmation candle in the direction of the respective reversal; for example, traders will look for a bearish candle after the evening star.

2 – bullish and bearish ENGULFING

  • A bullish or bearish ingested candlestick pattern can indicate reversal patterns.
  • A bullish engulfing candle formation shows the bulls beating the bears. As the diagram below shows, the green body (bulls) completely covers the first candle (bears).
  • A bearish engulfing candle pattern is a small green (or bullish) candle followed by a larger red (bearish) candle that dips the small green candle.

3 – DOJI

  • Candlestick Doji chart scheme is associated with indecision in the underlying asset market. This could mean a possible reversal of the current trend or a consolidation.
  • This pattern can occur at the top of an uptrend, the bottom of a downtrend, or in the middle of a trend.
  • chandelier itself has an extremely small body centered between a long upper and lower wick.

4 – HAMMER

  • Hammer Candle is viewed as a bullish reversal that generally occurs at the bottom of a downtrend.
  • This candle formation includes a small body where the open, high, low, and close are roughly the same. re is a long lower wick under the body that should be more than twice the length of the body of the candle. body can be bullish or bearish, however it is considered bullish. more favorable.

5 – HARAMI. bullish and bearish

  • A bullish or bearish Harami can indicate reversal patterns.
  • word “Harami” means “pregnant” in Japanese, and this candle pattern was named because it resembles a pregnant woman. second candle in the pattern must be contained within the body of the first candle as shown in the images below. This applies to both bullish and bearish Harami.
  • A downtrend precedes a bullish Harami and an uptrend precedes a bearish Harami.

6 – DARK CLOUD COVER

  • Dark Cloud Cover caral looks like a bearish reversal pattern.
  • This candlestick pattern should occur during an uptrend. As seen in the image below, the bullish candle is followed by a bearish candle.
  • This bearish candle must confirm certain criteria to validate the Dark Cloud Cover caral:
  1. opening price must be higher than the previous days.
  2. closing price should close below the midpoint of the previous bullish candle.
  • dark cloud cover pattern is similar to the bearish engulfing pattern. difference between the two refers to the second candle. Bearish engulfing pattern causes the second candle to open above the close of the first, while the dark cloud cover opens above the high of the first candle and closes below the midpoint of the body of the first candle. .

7 – PIERCING MODEL

  • piercing pattern looks like a bullish candle reversal pattern, at the end of a downtrend or during a pullback within an uptrend, or at support.
  • re are two components to forming a drilling pattern:
  1. Bearish candle
  2. Bullish candle
  • A piercing pattern occurs when a bullish (second) candle closes above the middle of the bearish (first) candle in a downtrend market.
  • opening price of the second candle should decrease as the market opens and follow the close above the midpoint of the previous candle as shown below.
  • Piercing and Dark Cloud Cover carals have similar characteristics. difference is that the perforation line is a bullish reversal pattern as mentioned above, while the Dark Cloud Cover pattern is a bearish reversal pattern.

8 – INTERNAL BARS

  • inside bar pattern is used in trending markets where the high and low of the inside bar are within the parameters of the previous candle or ‘parent bar’.
  • Inside bars are traded in the direction of the trend – if the market is in a downtrend, the trader will attempt to continue short with the presence of an inside bar. same principle applies in an uptrend.
  • Trading in the direction of the trend is not always taken for granted, as key support / resistance levels can indicate a reversal. Classically, entry points for traders are placed above or below the high or low of the main bar, depending on the direction of the trade.
  • An inside bar is also similar to a bullish or bearish harami candlestick pattern. main difference is that with an inside bar, the highs and lows are considered, while the real body is ignored.

9 – LONG STUCK

  • Long wick candle patterns often point to trend reversal.
  • Long wicks occur when prices are tested and then rejected. wick indicates the rejected prices.
  • Identifying the trend is important to interpreting the meaning of Long Wick.
  • Identifying key levels and price action is often used in conjunction with Long Wick patterns.

10 – FAILED STAR

  • A Shooting Star and a bearish candle with a long upper wick, little to no lower wick, and a small real body near the day’s low. It comes after an uptrend and potentially indicates a reversal of the downtrend.
  • distance between the maximum price and the opening price of the candle must be more than twice the body of the Shooting Star. distance between the lowest price of the day and the closing price must be very small or non-existent.

More tips for trading candlestick patterns

  • Understanding the basics of candlestick charts is essential before using more complex candlestick patterns. Our guide on “How to read a candlestick chart” provides great insight into these fundamentals.
  • For more information on using Japanese candlestick charts to trade forex, check out ours. Commercial chandeliers article.
  • Tune in to our Live Webinar for real-time access to our DailyFX experts discussing trading strategies, tips, news and forecasts in many different markets.

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