What are the commonly used candlestick patterns in price action trading

What are the commonly used candlestick patterns in price action trading

Candlestick Patterns (Every trader should know)

Candlestick patterns are used to predict the future direction of price movement.

Candlestick Patterns (Every trader should know)

1. Doji

A doji shows that supply and demand are in a tug-of-war that neither the bulls nor the bears can win.

Neither bears nor bears are victorious. In the case of an uptrend, the bulls have by definition won past conflicts because prices have climbed upward. Now, the fate of the latest skirmish is in doubt. After a long downturn, the opposite is true. The bears have been victorious in earlier conflicts, driving prices down. The bulls have found the guts to buy, and the tide may be about to turn.

Doji Star

Doji Star

A Doji Star candlestick design consists of three bars. It is regarded as an indicator of a likely reversal of the present market trend. It is a versatile candlestick pattern that has bullish and bearish variations. Its variations depend on the prevailing fashion.

Long-legged Doji

Long legged Doji
Long-legged Doji

A candle with “long legs” is much more dramatic. It states that prices rose much higher throughout the day, but then profit-taking occurred. Typically, a very substantial top shadow remains. A candle that closes below the middle of the candle indicates significant weakness. Here is an example of a doji with long legs.

Gravestone Doji

gravestone doji

As the name implies, a “gravestone doji” is likely the most foreboding candle of all. On that day, prices rebounded, but could not sustain the heights they reached. By the evening’s end They returned and closed at the same level as before. Here is an illustration of a tombstone doji.

Dragonfly

Dragonfly

A “Dragonfly” doji represents a day in which prices opened at a high level, declined, and then returned to the opening price. Dragonflies are rather uncommon. When they do occur, though, they frequently conclude with force (provided the stock is not already overbought, as shown by Bollinger bands and indicators such as stochastic).

2. The hangingman candle

hangman

, named from the appearance of a person who has been executed with legs

After an extended uptrend, swinging beneath happens. Because traders, the hangman occurs.

When you notice a drop in the stock price, you rush in to buy it at a low price.

In order for the Hanging Man signal to be valid, the following conditions must exist:

  • • Before this signal, the stock must have been in a clear uptrend. This is seen on the graph.
    • The lower shadow must be twice as large as the body.
    •The day after the Hanging Man is formed, the selling should continue.
  • • The higher shadow should be either non-existent or very minor. Although body color is unimportant, a black body would be more favorable than a white body.
hangman 1

Basics of candlesticks – A Beginner’s Guide 2022

Candlesticks can be broken down into four parts, each of which shows a different facet of the current trading activity and market emotion. Read More >>

3. The hammer

The hammer

Following a sustained downturn, the hammer appears. Strong selling frequently begins at the opening bell on the day of the hammer candle. However, as the day progresses, the market recovers and closes near the unchanged mark, or even higher in some cases. In these situations, the market may be “hammering” out a bottom.

In order for the Hammer signal to be valid, the following conditions must exist:

  • The stock must have been in a clear downturn before this signal. This is seen on the graph.
  • •The lower shadow must be twice as large as the body.
  • •Continuing buying should be seen the day after the Hammer is created.
  • •The higher shadow should be either non-existent or very minor. The color of the body is irrelevant, but a white body is preferable to a black body.

The hammer

4. Bullish engulfing candle

Occurs after a significant downtrend. Note that the engulfing candle must encompass the real body of the previous candle, but need not surround the shadow.

bullish engulfing candle

In order for the Bullish Engulfing signal to be valid, the following conditions must exist:

  • Before this signal, the stock must have been in a clear downturn. This is seen on the graph.
  • The second day of the signal should be a white candle that opens below the previous day’s Close and closes above the previous day’s black candle’s Open.
bullish engulfing candle 1

5. Bearish engulfing candle

bearish engulfing candle

A bearish engulfing candle occurs after a significant uptrend. Again, the shadows need not be surrounded.

  • Before this signal, the stock must have been in a clear downturn. This is seen on the graph.
  • The second day of the signal should be a white candle that opens below the previous day’s Close and closes above the previous day’s black candle’s Open.
bearish engulfing candle 1

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