What are the commonly used candlestick patterns in price action trading Part 4

What are the commonly used candlestick patterns in price action trading Part 4

Some candlestick patterns involve three candlesticks or more, but a “pattern” can be a single candlestick. 

1. Thrusting Line

thrusting line
  • Normally, it should indicate that the current trend will continue.
  • It can happen during a downtrend or an uptrend, and the candles that follow the pattern must confirm it.
  • The pattern is defined by two candles of contrasting colors (black and white in the case of a downtrend; white and black in the case of an uptrend).
thrusting line 1
  • The first candle is either lengthy and black (in the event of a downtrend) or long and white (in the case of an uptrend).
  • The Open of the Second Candle is lower than the Low of the First Candle, while the Close is near (but lower than) the Midpoint of the First Candle’s Real Body (in the case of a Downtrend). The open of the second candle is higher than the high of the first candle, while the close is close (but higher than) the midpoint of the first candle’s real body (in the case of an uptrend).

2. Separating Line pattern

Separating Line pattern
  • Normally, it should indicate that the current trend will continue.
  • It comes in two flavors: bullish and bearish, depending on the trend in which it is found.
Separating Line pattern 1
  • It happens during a downtrend, and the candles that follow the pattern must confirm it.
  • The first candle is a long, white candle.
  • The Second Candle is long and black, with an open that is similar (more or less) to the first candle’s open.

3. Three line Strike

Three line Strike
  • Normally, it should indicate that the current trend will continue.
  • It comes in two flavors: bullish and bearish, depending on the trend in which it is found.
Three line Strike 1 1
  • It happens during an uptrend, and the candles that follow the pattern must confirm it.
  • The first, second, and third candles are all white, and each candle’s burn is above the previous candle’s burn.
  • The Fourth Candle is long and black, with the open above the previous candles’ open and the close below the first candle’s open (the fourth candle fully contains within his real body the three previous candles).

4. Meeting line pattern

Meeting line pattern

It happens during a downtrend, and the candles that follow the pattern must confirm it.

  • The first candle is a long, black candle.
  • The Second candle is long and white, with a close that is the same (more or less) as the first candle’s close.
Meeting line pattern 1

It happens during an uptrend, and the candles that follow the pattern must confirm it.

  • The first candle is a long, white candle.
  • The Second candle is lengthy and black, with a close that is the same (more or less) as the first candle’s close.

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5. Low price gapping play

Low price gapping play

Normally, it should indicate that the current trend will continue.

  • It happens during a downtrend, and the candles that follow the pattern must confirm it.
  • The first candle is a long, black candle.
  • The Real Body of the Second, Third, and Fourth Candles is short, and they are near the low of the First Candle.
  • The Fifth Candle is a long, black candle with a space between it and the previous candle.
  • The “Sideways” Period can include up to eleven candles (not necessarily three); the Spinning Tops are these candles (that have a short real body).
Low price gapping play1

6. High price gapping play

High price gapping play

Normally, it should indicate that the current trend will continue.

  • It happens during an uptrend, and the candles that follow the pattern must confirm it.
  • The first candle is a long, white candle.
  • The Real Body of the Second, Third, and Fourth Candles is brief, and they are around the level of the First Candle’s High.
  • The Fifth Candle is a long, white candle with a space between it and the previous candle.
  • The “Sideways” Period can include up to eleven candles (not necessarily three); the Spinning Tops are these candles (that have a short real body).

7. Homing Pigeon pattern

Homing Pigeon pattern
  • It should normally be an indication of a bullish reversal of the current trend.
  • It happens during a downtrend, and the candles that follow the pattern must confirm it.
  • The first candle is long and black, while the second candle is also black but shorter. The Second Candle’s real body is entirely enclosed within the First Candle’s real body.

When the close of a candle that follows the “Homing Pigeon” is below the lowest low of the two candles of the Homing Pigeon, it confirms the pattern and reverses the trend.

Homing Pigeon pattern

8. J-Hook pattern and Inverted J-Hook pattern

J-Hook pattern and Inverted J-Hook pattern
J Hook pattern and Inverted J Hook pattern 1
  • In most cases, it should be interpreted as an indication that the current trend will continue.
  • It happens during an uptrend, and the candles that follow the pattern must confirm it.
  • The pattern begins with a sharp rise in prices. (1)
  • There is also a candlestick pattern that indicates a bearish trend (so the traders start to sell). (2)
  • Prices decrease, then reach a point of “indecision”. At the end of this period of indecision, a bullish signal should appear. (3)
  • Prices begin to increase and reach the previous high (which was formed during Phase 1). There should be a new uptrend in prices if prices continue to rise and move above this high.

If the prices do not rise above the high, the pattern has failed; in this case, the pattern forms the Double Top Pattern (a technical analysis pattern).

J-Hook pattern and Inverted J-Hook pattern
J Hook pattern and Inverted J Hook pattern 2

9. Rising three methods

Rising three methods
  • It happens during an uptrend, and the candles that follow the pattern must confirm it.
  • The pattern’s first and fifth candles are white and longer than the other three candles.
  • The black candles are the second, third, and fourth (or they alternate the color: it only matters that they represent a decline in prices; normally it is the third candle that can be of any color).
  • Furthermore, these candles are completely contained inside the real body of the first candle (or within the first candle’s high-low range), with the lows being higher than the open and the highs being lower than the close.
  • The Fifth Candle’s Close is higher than the First Candle’s Close.
Falling Three Methods

10. Falling Three Methods

Falling Three Methods

It happens during a downtrend, and the candles that follow the pattern must confirm it.

-The pattern’s first and fifth candles are black and longer than the other three candles.

-The white candles are the second, third, and fourth (or they alternate the color: it only matters that they represent a rise in prices; normally it is the third candle that can be of any color). Furthermore, these candles are totally contained within the real body of the first candle (or within the first candle’s high-low range), with the lows below the first candle’s open and the highs above the first candle’s close.

-The Fifth Candle’s Close is lower than the First Candle’s Close.

Falling Three Methods 1

11. Advance block pattern

Advance block pattern
  • It happens during an uptrend, and the candles that follow the pattern must confirm it.
  • It should normally be a sign of a bearish reversal of the current trend.
  • The pattern is made up of three white candles with progressively shorter real bodies.
  • The Real Body of the Previous Candle should contain the Open of the Second and Third Candles.
  • The candles’ closes are frequently far apart from their respective highs.
  • The Candle Shadows grow taller over time, especially the upper shadows of the last two candles.
  • The Bearish Reversal could be confirmed by the succeeding candles, if one of them (when falling) overcomes the midway of the first candle’s real body.

12. Kicker

Kicker

The above graph demonstrates why this pattern is so explosive. There is a bullish and a bearish variant, like with most candle patterns. The stock is moving down in the bullish version, and the last red candle closes at the bottom of the range.

The stock then gaps open above the previous day’s high and closes the next day. This “shock event” makes short sellers want to cover their positions and brings in new long traders.

In the bearish version, this is inverted.

Kicker

References :

Wikipedia | Books | ShutterBulky

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