What are the commonly used candlestick patterns in price action trading Part 2

What are the commonly used candlestick patterns in price action trading Part 2

Three line strike, two black gapping, three black crows, evening star, and abandoned infant are some of the candlestick patterns used to identify price direction and momentum.

1. Dark cloud

the dark cloud

The stock closes at least halfway into the preceding white candle on the gloomy cloud-covered day.

The more intense the signal, the greater the previous candle’s penetration (that is, the closer this candle is to being a bearish engulfing). If a dark cloud covered candle appears at an important resistance level and the end of day volume is high, traders should pay special attention.

In order for the Dark Cloud 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 second day of the signal should be a black candle that opens above the previous day’s high and closes more than half way into the white candle’s body.
1. The dark cloud

2. The piercing pattern     

The piercing pattern

A modest decline (one that lasts between five and fifteen trading days) is frequently ended by the piercing pattern. The daily candle should have a pretty large black body the day before the piercing candle comes, indicating a powerful down day. The next day’s candle gaps below the lower shadow, or previous day’s low, in the traditional piercing pattern.

In order for the Piercing 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 low and closes more than half way inside the black candle’s body.
The piercing pattern 1

3. Evening star pattern

The evening star pattern

During a long-term rise, the evening star pattern appears. On the first day, we notice a candle with a long white body. Everything appears to be in order, and the bulls appear to be in complete control of the stock. However, on the second day, a star candle appears. The stock must gap higher on the day of the star for this to be a true evening star pattern.

A black or white star can be used. The real body of a star candle is small, while the upper shadow is generally huge. A candle with a black body appears on the third day. This candle retreats significantly into the first day’s physical body. If there is a gap between the second and third day’s candles, the pattern becomes more intense. This disparity, however, is unusual, especially when it comes to equity trading. The stronger the reversal signal, the further this third candle retreats into the real body of the first day’s candle.

The evening star pattern 1

4. Morning star

The morning star

The morning star, which has a huge dark candle on the first day. Because there is a small lower shadow on the middle day, it is not a perfect star, but the upper shadow on top of a small genuine body gives it a star character. The reversal is completed by the third candle, which is a huge white candle. Not like the third candle, which nearly reached the first day’s highs and occurred at high volume.

In order for the Morning Star 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 signal’s first day must have a long dark body. The second day must be spent deliberating. The third day’s candle should be a long white candle that reaches at least halfway into the dark candle’s body.
The morning star1

How did you get into investing

Many people, just like you, look to the stock market to help them buy a home, send their children to college, or save for retirement. However, unlike deposits in banks, which are insured by the federal government, the value of stocks, bonds, and other assets changes with market conditions. No one can guarantee that your investments will make money, and they may lose value. Read More>>

5. Shooting star

The shooting star

Only at a probable market top may the shooting star appear. When a shooting star appears after a candle with a large genuine body, it is usually a stronger warning since it indicates that the price cannot maintain its current level. The market should ideally gap higher on the day the shooting star appears. The stock should then surge dramatically. It appears that the longs have complete control at this time.

However, profit-taking occurs at some point during the day. The stock finishes close to unchanged in the market.

as demonstrated with a little genuine body. As a result, a shooting star’s true body is small while its upper body is huge.

shadow. There will usually be no lower shadow or a very faint one.

In order for the Shooting Star 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 upper shadow must be twice as large as the body.
  • Continued selling should be seen the day after the shooting star is formed.
  • Either no lower shadow or a very modest lower shadow should be present. The color of the body is irrelevant, but the black body is.
The shooting star 2

6. Inverted hammer

inverted hammer

The inverted hammer can only appear after a long slump, which means the stock is most likely already oversold. So, the inverted hammer shows that traders with long positions in the security, most of whom are losing money right now, are usually ready to dump their shares by selling when the security is strong.

inverted hammer 1

7. Bullish harami

Bullish harami

In either a bullish or bearish trend, the bullish harami candle might appear, but the colors are reversed: A huge black body precedes a smaller white genuine body, signaling a bullish trend.

The upper and lower shadows in either bullish or bearish haramis can be of any magnitude, and theoretically, they could even go over the main body of the clear candle. On the other hand, the shadows of the harami day are often small and stay well within the real body of the candle from the day before.

In order for the Bullish Harami 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.
  • On the second day of the signal, a white candle should open above the previous day’s close and close below the previous day’s black candle’s open.
Bullish harami1

8. Bearish Harami

Bearish Harami

In order for the Bearish Harami 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.
  • On the second day of the signal, a white candle should open above the previous day’s close and close below the previous day’s black candle’s open.
Bearish Harami 1

9. Marubozu

Marubozu

Marubozu is a Japanese word that means “close-cropped.” The marubozu is typically a long candle that indicates a broad trading range for the day. There is no upper or lower shadow on a marubozu candle. On rare occasions, it may be missing both an upper and lower shadow.

It is well worth noticing when a full marubozu, or one that is extremely close to full, occurs. If the candle is white, it indicates that the purchasers are quite confident. A black candle, on the other hand, implies that merchants were eager to escape. As always, pay close attention to the following day’s trading to see if there is any follow-through. Depending on the color, a full or almost full marubozu indicates considerable purchasing or selling interest. If the stock continues to trend in the same way early the next day, it is likely to do so for the next few sessions. For the trader, this insight is crucial.

Marubozu 1

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