candlestick patterns to know Flashcards
candlestick reversal
Candlestick reversal patterns predict a change in price direction
Continuation patterns
predict an extension in the current price direction
Bullish Three Line Strike
The bullish three line strike reversal pattern carves out three black candles within a downtrend
Each bar posts a lower low and closes near the intrabar low
The fourth bar opens even lower but reverses in a wide-range outside bar that closes above the high of the first candle in the series
The opening print also marks the low of the fourth bar
According to Bulkowski, this reversal predicts higher prices with an 83% accuracy rate
Two Bearish Black Gapping
The bearish two black gapping continuation pattern appears after a notable top in an uptrend, with a gap down that yields two black bars posting lower lows
This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend
According to Bulkowski, this pattern predicts lower prices with a 68% accuracy rate
bearish Three Black Crows
The bearish three black crows reversal pattern starts at or near the high of an uptrend, with three black bars posting lower lows that close near intrabar lows
This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend
The most bearish version starts at a new high (point A on the chart) because it traps buyers entering momentum plays
According to Bulkowski, this pattern predicts lower prices with a 78% accuracy rate
The Bearish Evening Star
The bearish evening star reversal pattern starts with a tall white bar that carries an uptrend to a new high
The market gaps higher on the next bar, but fresh buyers fail to appear, yielding a narrow range candlestic
A gap down on the third bar completes the pattern, which predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend
According to Bulkowski, this pattern predicts lower prices with a 72% accuracy rate
The Bullish Abandoned Baby
The bullish abandoned baby reversal pattern appears at the low of a downtrend, after a series of black candles print lower lows
The market gaps lower on the next bar, but fresh sellers fail to appear, yielding a narrow range doji candlestick with opening and closing prints at the same price
A bullish gap on the third bar completes the pattern, which predicts that the recovery will continue to even higher highs, perhaps triggering a broader-scale uptrend
According to Bulkowski, this pattern predicts higher prices with a 49.73% accuracy rate
Bullish Hammer
formed of a short body with a long lower wick, and is found at the bottom of a downward trend
shows that although there were selling pressures during the day, ultimately a strong buying pressure drove the price back up
The colour of the body can vary, but green hammers indicate a stronger bull market than red hammers
Bullish Inverse Hammer
A similarly bullish pattern is the inverted hammer
–> The only difference being that the upper wick is long, while the lower wick is short
It indicates a buying pressure, followed by a selling pressure that was not strong enough to drive the market price down
The inverse hammer suggests that buyers will soon have control of the market
Bullish engulfing
The bullish engulfing pattern is formed of two candlesticks
The first candle is a short red body that is completely engulfed by a larger green candle
Though the second day opens lower than the first, the bullish market pushes the price up, culminating in an obvious win for buyers
Bullish Piercing Line
The piercing line is also a two-stick pattern, made up of a long red candle, followed by a long green candle
There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening
–> It indicates a strong buying pressure, as the price is pushed up to or above the mid-price of the previous day
Bullish Morning Star
The morning star candlestick pattern is considered a sign of hope in a bleak market downtrend
It is a three-stick pattern: one short-bodied candle between a long red and a long green
–> Traditionally, the ‘star’ will have no overlap with the longer bodies, as the market gaps both on open and close
It signals that the selling pressure of the first day is subsiding, and a bull market is on the horizon
Three white soldiers
occurs over three days
It consists of consecutive long green (or white) candles with small wicks, which open and close progressively higher than the previous day
It is a very strong bullish signal that occurs after a downtrend, and shows a steady advance of buying pressure
Hanging man
the bearish equivalent of a hammer
–> it has the same shape but forms at the end of an uptrend
indicates that there was a significant sell-off during the day, but that buyers were able to push the price up again
The large sell-off is often seen as an indication that the bulls are losing control of the market
Shooting star
the same shape as the inverted hammer, but is formed in an uptrend
–> it has a small lower body, and a long upper wick
Usually, the market will gap slightly higher on opening and rally to an intra-day high before closing at a price just above the open
signs that bears are taking control
