Top 10 Candlestick Patterns to Trade the Markets

Technical trading is aided by candlestick patterns. They allow traders to understand possible market trends and make decisions based on those inferences. Candlestick patterns can indicate bullish or bearish movement. This article will briefly discuss what candlestick patterns look like and then introduce the top 10 formations traders need to know in order to trade the markets efficiently.

Top 10 Candlestick Patterns to Trade the Markets

Take our interactive quiz about forex patterns to learn more!

What are CANDLESTICK PATTERNS?

A candlestick is one bar that represents the price movement for a particular asset over a specified time period. It displays information such as the open, high and low, as well as close, for each time period.

Candlestick patterns are a combination of one or more candlesticks. This helps technical traders to make inferences about the future price patterns and movements of the underlying asset. These patterns are shown graphically on a chart that is used for market analysis. This guide to candlestick charts will help you learn how to read them for trading.

CANDLESTICK PATENTS CAN BE BEARISH OR BULLISH

To recognize and use the most common candlestick patterns in a trading strategy, traders must understand how their inclination can impact the market direction (trend). Below are the main price movements that candlesticks can indicate. These patterns are included in our top 10 list.

TOP 10 CANDLESTICK ATTERNS TRADERS SHOULD NOW

1 - EVENING STAR and MORNING STAR

The morning and evening star candlestick patterns appear at the ends of downwards and upwards trends, respectively. They indicate reversal patterns.

Names are derived from the arrangement's star-shaped shape.

The image below shows that the first candlestick points in the direction of the trend. Next is a bullish/bearish candle with a smaller body. The third candlestick can be seen in the direction that the trend is reversing, and should close at the halfway point of first candlestick.

A confirmation candle will be required to trade this candlestick pattern. For example, traders might look for a bearish candle following the evening star.

2 - BULLISH & BEARISH ENGULFING

Reversal patterns may be indicated by a bullish or bearish engulfing pattern on a candlestick.

Bulls are more powerful than bears, as shown by the bullish engulfing candlestick pattern. The pattern below illustrates that the green body (bulls), covers the entire first candlestick (bears).

The bearish engulfing candlestick is a small, bullish-looking candle that is followed by a larger, bearish-looking candle.

3 - DOJI

The Doji candlestick chart pattern indicates indecision in the market for the underlying asset. This could indicate a potential reversal or consolidation.

This can happen at the top or bottom of an uptrend, as well as in the middle of a current trend.

The candlestick has a very small body that is centered between a long, upper and lower wick.

4 - HAMMER

The Hammer candle can be viewed as a bullish trend reversal, usually at the bottom end of a downtrend.

The candle's body is small, so the open, close, high, low, and close are all roughly equal. The candle body should have a longer lower wick that is at least twice as long as the candle body. Bullish candles are more popular than bearish ones.

5 - BULLISH & BEARISH HARMI

Reversal patterns may be indicated by a Bullish Harami or Bearish Harami.

This candlestick pattern is named Harami, which in Japanese means "pregnant". It is named because it looks like a pregnant woman. As you can see in the photos below, the second candle must be within the first one. This is true for bullish Harami's as well as bearish Harami’s.

A bullish Harami is preceded by a downtrend, and a bearish Harami precedes an uptrend.

6 - DARK CLOUUD COVER

Dark Cloud Cover is a bearish reversal design.

This candlestick pattern must be created during an uptrend. The image below shows that the bullish candle is followed closely by the bearish candle.

To validate the Dark Cloud Cover pattern, this bearish candle must meet certain criteria:

1. The opening price must be higher than the closing price for the previous day.

2. The closing price should be below the midpoint of any bullish candle.

The Dark Cloud Cover pattern is very similar to the Bearish Engulfing. The second candlestick is the difference between them. The second candlestick in the Bearish Engulfing design opens above the close of first candle, while the Dark Cloud Cover opens below the middle of first candlestick.

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