What are the 70 classic candlestick patterns?
Candlestick patterns are powerful tools used by traders to predict market trends and make informed decisions. These patterns provide valuable insights into investor sentiment and can help identify potential buying or selling opportunities. Let's explore ten commonly encountered candlestick patterns, each consisting of seven unique variations, resulting in a total of 70 classic candlestick formations.
1. Bullish/Bearish Engulfing
The Bullish Engulfing pattern forms when a small bearish candle is followed by a larger bullish candle that completely engulfs the previous candlestick. It suggests a reversal may occur. In contrast, the Bearish Engulfing pattern indicates a potential downtrend reversal.
2. Morning/Evening Star
The Morning Star pattern forms during a downtrend and represents a potential trend reversal. It consists of a large bearish candle followed by a small candle, commonly known as a \"doji,\" and is completed with a large bullish candle. The Evening Star pattern is the opposite, signaling a possible trend reversal from an uptrend.
3. Hammer/Hanging Man
The Hammer pattern consists of a small body with a long lower wick, indicating a potential bullish reversal after a downtrend. The Hanging Man is a similar pattern seen in an uptrend, suggesting a potential bearish reversal.
4. Doji
Doji candles have equal or almost equal open and close prices, forming a cross-like shape. They indicate indecision in the market and often precede significant price movements, making them important to watch.
5. Shooting Star/Inverted Hammer
The Shooting Star pattern is characterized by a small body near the lower end of the overall range and a long upper wick. It suggests a potential reversal from an uptrend. The Inverted Hammer is similar but appears during a downtrend, indicating a possible trend reversal.
6. Bullish/Bearish Harami
The Bullish Harami pattern occurs when a large bearish candle is followed by a smaller bullish candle entirely contained within the previous candle. It suggests a potential trend reversal from a downtrend. The Bearish Harami occurs in an uptrend and indicates a possible reversal.
7. Bullish/Bearish Doji Star
The Bullish Doji Star consists of a doji candle followed by a large bullish candle, indicating a potential reversal. Conversely, the Bearish Doji Star appears during an uptrend and can signal a bearish reversal.
8. Piercing Pattern/Dark Cloud Cover
The Piercing Pattern is identified by a bullish candle that opens below the previous candle's low and closes at least halfway into its body. It indicates a potential trend reversal from a downtrend. The Dark Cloud Cover is the opposite, suggesting a potential reversal from an uptrend.
9. Bullish/Bearish Tweezer Tops or Bottoms
Tweezer Tops appear when two consecutive candles have equal or almost equal highs, indicating a potential reversal from an uptrend. Tweezer Bottoms are similar but signal a potential reversal from a downtrend.
10. Three White Soldiers/Three Black Crows
The Three White Soldiers pattern consists of three consecutive bullish candles with higher highs and higher lows, indicating a strong uptrend. The Three Black Crows pattern is the opposite, signalling a strong downtrend through three consecutive bearish candles with lower lows and lower highs.
By understanding and recognizing these classic candlestick patterns, traders can gain a significant edge in the market. Remember, it's crucial to combine these patterns with other technical analysis tools and indicators to validate trading decisions effectively.