Candlestick Patterns and techniques day traders use to profit with them

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Candlestick Patterns

All through time, people have basically acted the same way in the market as a result of greed, fear,

ignorance, and hope. This is why the numerical formations and patterns recur on a constant basis.

The price pattern reminds you that every movement of importance is but a repetition of similar price

movements, that just as soon as you can familiarize yourself with the actions of the past, you will be

able to anticipate and act correctly and profitably upon forthcoming movements.

I absolutely believe that price movement patterns are being repeated. They are recurring

patterns that appear over and over, with slight variations. This is because markets are driven

by humans — and human nature never changes.

• Japanese candlesticks used since the 17th century in technical analysis

• Allow a visual recognition of chart patterns

• Although many patterns exist, day traders need only focus on a select few, which have shown higher probability as winning set ups, the rest have been ignored.

• When a bar close is HIGHER than the open, the body of the candle is White or Green, and is considered BULLISH

• When a bar close is LOWER than the open, the body of the candle is Red or Black, and is considered BEARISH

• The body of the candle contains the price action between the open and the close of the individual candle.

• LARGE-bodied candles indicate strong price action

• SMALL-bodied candles indicate weak price action & consolidation

• The TAIL of the candlestick shows prices that occurred above or below the open and close of the candle.

• Tails are considered the extremes of each candle

• Tails often shows signs of a change in trend

• Candles without tails indicate a STRONG continuation of the trend

• Bottom Tails indicate that lower prices did NOT hold, signaling that sellers have lost momentum and price may move upward on buying pressure.

• Top Tails indicate that buyers have lost momentum and higher prices couldn’t hold, meaning price may be coming to the downside.

• Top and Bottom Tails are seen most frequently at the HOD or LOD

Bullish Candlestick Patterns:

• Bull Flags & Pennants

o Continuation pattern, meaning that price will continue to move with the current trend when this pattern develops

o Characterized by a sharp move up or down, followed by a consolidation period near its highs of the move.

• Engulfing Candles

o When a narrow-range candle is followed by a wider range candle with short tails and a close above the previous close

• Long Bottom Tails

• Hammer

o A bullish candlestick with a significant bottom tail, and a close at or near the high

Bearish Candlestick Patterns: (The inverse of any BULLISH pattern is considered bearish)

• Bear Flags & Pennants

o Continuation pattern, meaning that price will continue to move with the current trend when this pattern develops

o Characterized by a sharp move up or down, followed by a consolidation period near its highs of the move.

• Long Top Tail

• Inverted Hammer

•

Indecisive Patterns:

These patterns tell us that the price action is indecisive, so beware the direction of the market may be changing

• Candles with LONG top & bottom tails with a narrow body in the center of the candle are considered indecisive.

You can find a FULL LENGTH Video on the topic of Candlestick Patterns by clicking here!

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