Japanese candlestick patterns appear quite often in the Forex, CFD and index (stock) markets. Let's get acquainted with them and how to distinguish them on the chart of different trading platforms - the nine most popular patterns:
1. Hammer candlestick
2. Inverted Hammer candlestick
3. Harami Candlestick
4. Shooting Star candlestick
5. Hanging Man candlestick
6. Piercing Line candlestick
7. Bullish/Bearish Engulfing candlestick
8. Dark Cloud candlestick
9. Three Black Crows candlestick
10. The 3 soldiers candlesticks
11. Morning Star candlestick
12. Evening Star Candlestick
Of course, there are many other Japanese candlestick patterns that you will encounter during trading operations, whether on the rise or fall, but we will discuss them in other articles specifically about them.
Now let us explain to you, dear reader, the models and types of Japanese candles with pictures and in more detail. But before we start, why don’t you open a demo account so you can open live charts and try to discover the candle formations that you will learn about in the next paragraph!
1. Hammer Candlestick
Source: Demo Account - MetaTrader 4 Ultimate - DAX30 Chart - H1 Chart - Data Range: October 21, 2019 - October 24, 2019. Conducted on January 13, 2020 - Note that past performance is not a reliable indicator of future results.
A hammer candlestick has a long lower shadow, which is usually twice the length of the real body. It is a bullish reversal candlestick pattern, usually appearing at the bottom of downtrends. The body can be either bullish or bearish, but is considered stronger if it is bullish.
2. Inverted Hammer Candlestick
As the name suggests, the Japanese Inverted Hammer candlestick has the same silhouette as the one shown in the previous section, but the difference is that it is symmetrically reversed. This means that the long wick that characterizes the hammer this time is the upper part, located on the body.
Source: Demo Account - MetaTrader 5 Ultimate - DAX30 Chart - H1 Chart - Data Range: January 2, 2020 - January 6, 2020. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
This signal remains valid for the hammer and also indicates a potential bullish signal.
3. Harami Candlestick
The number of candles in the pattern is 2. The market is characterized by a prevailing trend.
Bullish Harami Candle
The body of the first candle is red, while the second is a bullish Japanese candle (blue). But more importantly, the second candle must be completely included in the body of the previous red candle, exactly the opposite of the enveloping candle we saw before.
Source: Demo Account - MetaTrader 5 Ultimate - USDJPY Chart - H1 Chart - Data Range: January 2, 2020 to January 8, 2020. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
Pattern Type: Reversible
Future trend: bullish
Bearish harami candle
The body of the first candle is blue while the second candle is red. But most importantly, the second candle must be fully included in the body of the previous blue candle.
Source: Demo Account - MetaTrader 5 Supreme Edition - USDJPY - H1 Chart - Data Range: November 28, 2019 - December 4, 2019. Created on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
Pattern Type: Reversible
Future trend: Bearish
4. Shooting Star Candlestick
Source: Demo Account - MetaTrader 4 Ultimate - FTSE 100 Chart - H4 Chart - Data Range: 16 Jan 2020 to 17 Feb 2020. Conducted on 17 Jan 2020 - Note that past performance is not a reliable indicator of future results.
Disclaimer: Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admirals (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
A shooting star candlestick appears in uptrends, indicating a potential reversal in trend. The wick is long in the direction of the market, upside down, and longer than the body of the candle. The body can be either bullish or bearish, but is considered stronger if it is bearish.
5. Hanging Man Candlestick
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - H1 Chart - Data Range: November 15, 2019 - November 21, 2019. Created on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
The Hanging Man candlestick is similar to the Hammer candlestick, but it mainly occurs at the top of an uptrend, and can serve as a warning of a potential bearish reversal.
6. Piercing Line Candlestick
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - D1 Chart - Data Range: May 4, 2018 - July 11, 2018. Created on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
The Piercing Line candlestick is a bullish reversal candlestick pattern. It is very common in the Forex market. This pattern occurs when the second bullish candle closes above the middle of the first bearish candle. The low of the second candle is lower than the low of the first candle. In the Forex market, the pattern is valid even if the low of the second candle is equal to the low of the first candle.
7. Bullish and Bearish Engulfing Candlestick
Bullish and bearish engulfing candlesticks are reversal patterns. Bullish engulfing candlesticks usually occur at the bottom of a downtrend, while bearish engulfing candlesticks are observed at the top of an uptrend. The bullish engulfing pattern is characterized by two candlesticks. The first candlestick is contained within the real body of the second candlestick, which is always bullish. The bearish engulfing pattern is also characterized by two candlesticks. The first candlestick is contained within the real body of the second candlestick, which is always bearish.
Example of a bullish engulfing pattern:
Source: Demo Account - MetaTrader 4 Ultimate - DAX30 - H1 Chart - Data Range: 12 Sep 2019 - 18 Sep 2019. Conducted on 13 Jan 2020 - Note that past performance is not a reliable indicator of future results.
Example of a bearish engulfing pattern:
Source: Demo Account - MetaTrader 4 Ultimate - DAX30 - H1 Chart - Data Range: September 19, 2019 - September 25, 2019. Conducted on January 13, 2020 - Note that past performance is not a reliable indicator of future results.
8. The Dark Cloud Candlestick
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - D1 Chart - Data Range: January 29, 2019 - April 5, 2019. Created on January 13, 2020 - Note that past performance is not a reliable indicator of future results.
A dark cloud candlestick is a bearish reversal pattern that appears in uptrends. It consists of two candles: one bullish, and the other bearish. A dark cloud candlestick is formed when the second candle opens above the close of the first candle, but then declines and closes above the open price of the first bullish candle.
This pattern is the opposite of the piercing line. Similarly, in the Forex market, a dark cloud candlestick is valid even when the second candle opens at the high of the first candle and not necessarily above it. However, the important thing is that the second candle in this pattern must close somewhere below 50% of the first candle (the real body of the bearish candle).
9. Three Black Crows candlestick
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - H4 Chart - Data Range: October 2, 2019 - October 24, 2019. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
This type of Japanese candlestick pattern consists of 3 candles. The market is characterized by an upward trend. There are 3 consecutive red candles on the chart. Each candle opens within the range of the previous candle’s body, and each candle closes at new low levels.
These three consecutive red candles, in the context of a bearish market. This is the continuation figure of the primary trend.
Pattern Type: Continuation of the Basic Trend
Trend: Bearish
10. The 3 Soldiers Candles
In order to correctly identify this pattern we need to observe 3 candles. Each candle will open and close at higher levels than the previous candle.
Pay attention to each candle, the opening price should be in the body of the previous candle.
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - D1 Chart - Data Range: October 2, 2019 - October 24, 2019. Created on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
These three consecutive candles are blue (bullish), while the market has an upward trend.
Pattern Type: Continuation of the Basic Trend
Trend: Upward
11. Morning Star Candlestick
Source: Demo Account - MetaTrader 5 Supreme Edition - GBPUSD - H4 Chart - Data Range: October 2, 2019 - October 24, 2019. Made on January 13, 2020 - Please note that past performance is not a reliable indicator of future results.
This type of Japanese candlestick pattern also consists of 3 candles, and appears on charts in bearish markets. The pattern starts with a bearish black candle, followed by a Doji or small black candle, and then a bullish white momentum candle that reverses the trend.
12. Evening Star Candlestick
The market in this case is bullish, and the pattern is formed of 3 candles, the first candle is a white bullish candle, followed by a short-bodied candle and a long wick with an upward trend. Immediately after that, a black bearish candle appears on the chart.
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