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Candlestick Patterns Every Trader Should Know

Wisebitcoin 2022-08-17

Candlestick Patterns Every Trader Should Know

Candlesticks are used to identify trading patterns that help traders and technical analysts set up their trades. Candlestick patterns, which are technical trading tools, have been used for centuries to predict price direction.

The candlestick patterns are formed by grouping two or more candlesticks in a certain way. Candlesticks are based on current and past price movements and are not future indicators.

In this blog, we will discuss some of the basics candlestick patterns that every trader should know. But first let’s find out more about candlesticks and candlestick patterns. 

What is a candlestick?

A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars.

A candlestick has three basic features:

  • The body, representing the open-to-close range
  • The wick, or shadow, indicating the intra-day high and low
  • The colour, which reveals the direction of market movement – a green (or white) body indicates a price increase, while a red (or black) body shows a price decrease

Individual candlesticks form patterns that traders can use to recognise major support and resistance levels. 

How To Read Candlesticks

Reading candlesticks is fairly simple. The height of each candle is determined by the opening and closing price of the timeframe the candle represents. The wick of each candle represents the lowest price for the candle and the highest price, but not the closing price. This is simply the highest point reached during the timeframe of the candle. If the body is solid, black, or red, it indicates the price closed lower. Hollow candles that are white or green mean the price closed higher than when the candle started.


When using any candlestick pattern, it is important to remember that although they are great for quickly predicting trends, they should be used alongside other forms of technical analysis to confirm the overall trend.

6 Important Candlestick Patterns

 

Bullish Engulfing Candlestick

 

Bullish Engulfing Candlestick

Bullish engulfing pattern usually occur at the end of a downtrend. The bullish engulfing pattern consists of two candles. The first candle is contained within the body of the second candle, which is always bullish. It is a bullish signal. 

Bearish Engulfing Candlestick

 

Bearish Engulfing Candlestick

Bearish engulfing pattern usually occur at the end of an uptrend. The bearish engulfing pattern consists of two candles. The first candle is contained within the body of the second candle, which is always bearish. It is a bearish signal.

Three Black Crows Candlestick

 

Three Black Crows Candlestick

This pattern consists of 3 candles.  You will find that there are 3 consecutive bearish candles on the chart, and each candle opens within the body of the previous candle (or maybe at the closing price of the previous candle in the fx market), and each candle closes at a new low. It is a bearish signal.

The 3 Soldiers Candlestick

 

The 3 Soldiers Candlestick

This pattern consists of 3 candles.  You will find that there are 3 consecutive bullish candles on the chart, and each candle opens within the body of the previous candle (or maybe at the closing price of the previous candle in the fx market), and each candle closes at a new high. It is a bullish signal.

Morning Star Candlestick

 

Morning Star Candlestick

This pattern consists of 3 candles as well, and they appear on the charts in bear markets. The pattern starts with a bearish black candle, followed by a Doji or small black candle, and then a white bullish candle that reverses the direction. It is a bullish signal.

Evening Star Candlestick

 

Evening Star Candlestick

This pattern consists of 3 candles as well, and they appear on the charts in bull markets. The pattern starts with a bullish candle, followed by a Doji or small black candle, and then a bearish candle that reverses the direction. It is a bearish signal.

To Sum It Up

Candlestick patterns should always be used with other technical indicators as sometimes the signals generated by these patterns can be false.

We hope you found this blog informative and use it to its maximum potential in the practical world.