Bullish patterns form after a downtrend in the market and signal a possible price reversal. They indicate that it may be a good time to consider buying.
1. Hammer
- The Hammer has a small body and a long lower shadow (at least twice the length of the body). It appears at the end of a downtrend. It shows that despite selling pressure during the day, buyers pushed the price back up. The green hammer is more bullish than the red hammer. A bullish move the next day confirms the reversal.
2. Inverted Hammer
- Similar to a hammer, but the long shadow is above the body. This pattern shows buying pressure followed by some selling pressure, but buyers may soon take control. This is not as strong a signal as a regular hammer.
3. Bullish Engulfing
- This pattern consists of two candles. The first is a short red candle, followed by a larger green candle that âoccupiesâ the red candle. It shows strong buying pressure that could signal a bullish reversal.
4. Piercing Line
- Consists of two candles: a long red candle followed by a long green candle. The green candle opens lower than the red candle, but then rises to at least half the previous day's candle, signaling strong buying pressure.
5. Morning Star
- Three candlestick pattern: a long red candle, followed by a small body candle, and then a long green candle. It shows that selling pressure is decreasing and a bullish reversal is coming.
6. Three White Soldiers
- This is a very strong bullish pattern. It consists of three long green candles, each opening higher and closing higher than the previous day. It indicates steady buying pressure after a downtrend.
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Six bearish candlestick patterns
Bearish patterns usually form after an uptrend and signal that the price may reverse to the downside. Traders may consider selling or opening short positions.
1. Hanging Man
- This pattern looks like a hammer but appears at the end of an uptrend. It shows an intraday sell-off followed by buyers pushing the price back up. It shows that the upward momentum may be weakening.
2. Shooting Star
- Shooting Star is similar to inverted hammer but forms in an uptrend. It has a long upper shadow and small body, indicating that the market may soon reverse to the downside.
3. Bearish Engulfing
- The bearish engulfing pattern occurs when a small green candle is followed by a larger red candle that "engulfs" the green candle. It signals a potential downturn, especially if the second candle closes significantly lower.
4. Evening Star
- Similar to the morning star but signals a bearish reversal. It consists of a long green candle, a small body candle and a long red candle. It shows that the bullish momentum is weakening and a downtrend may follow.
5. Three Black Crows
- This bearish pattern consists of three consecutive long red candles with short shadows. It signals increased selling pressure, potentially marking the start of a downtrend.
6. Dark Cloud Cover
- This two-candle pattern starts with a long green candle, followed by a red candle that opens above the green candle but closes below the midpoint of the green candle. It indicates that bearish sentiment is dominant, indicating a reversal in price direction.
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These candlestick patterns can help traders spot potential market reversals, either to the upside (bullish) or downside (bearish), and guide trading decisions.
