10 Must-Know Candlestick Patterns to Decode Market Psychology 🎯
Candlestick patterns provide key insights into the psychology behind price movements. Mastering these patterns can help you identify potential market trends and reversals.
1. Marubozu (Dominance in Action) 📈
Description: A single candle with no wicks, signaling strong control by either buyers or sellers.
Market Psychology: Indicates strong momentum in one direction with no resistance.
Example: After positive earnings, a stock closes significantly higher without any intraday dips, forming a bullish Marubozu.
2. Doji (Indecision Reigns) ⚖️
Description: A candle where the open and close are almost the same.
Market Psychology: Highlights a tug-of-war between buyers and sellers.
Example: A stock fluctuates intraday but closes near its opening price, reflecting market indecision.
3. Hammer (Reversal Alert) 🔨
Description: A candle with a small body and a long lower wick, often appearing after a downtrend.
Market Psychology: Buyers stepped in aggressively after sellers drove prices lower.
Example: A stock drops sharply during the day but closes higher, signaling potential reversal.
4. Inverted Hammer (Bullish Reversal) 🔄🔨
Description: A candle with a small body and a long upper wick, seen after a downtrend.
Market Psychology: Buyers tried pushing prices higher, signaling a potential reversal.
Example: A stock attempts a breakout but closes near the open, hinting at incoming bullish sentiment.
5. Shooting Star (Bearish Reversal) 🌠
Description: A candle with a small body and a long upper wick, appearing after an uptrend.
Market Psychology: Profit-taking or resistance prevents higher prices.
Example: A stock spikes intraday but closes near its open price, forming a bearish signal.
6. Bullish Engulfing (Buyers Take Charge) 🟢📊
Description: A large green candle engulfs the previous day's red candle.
Market Psychology: Strong buying momentum reverses a bearish trend.
Example: Heavy buying activity overshadows previous selling pressure, creating a clear bullish signal.
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7. Bearish Engulfing (Sellers Dominate) 🔴📉
Description: A large red candle engulfs the previous day's green candle.
Market Psychology: Selling pressure overwhelms buyers, signaling a bearish reversal.
Example: Panic selling on bad news drives the stock down sharply.
8. Morning Star (Bullish Reversal Trio) 🌅✨
Description: A three-candle pattern signaling a reversal after a downtrend.
1. Large red candle.
2. Small neutral candle.
3. Large green candle.
Market Psychology: Buyers regain control after indecision.
Example: Positive news sparks a rally following a period of consolidation.
9. Evening Star (Bearish Reversal Trio) 🌃💫
Description: A three-candle pattern indicating a reversal after an uptrend.
1. Large green candle.
2. Small neutral candle.
3. Large red candle.
Market Psychology: Sellers overpower buyers after indecision.
Example: Profit-taking leads to a significant price drop.
10. Three White Soldiers & Three Black Crows 🕊️⚫
Description:
White Soldiers: Three consecutive green candles indicate a strong uptrend.
Black Crows: Three consecutive red candles show a bearish trend.
Market Psychology: Sustained buying or selling momentum.
Example: Consistent buying drives prices higher over three days, forming white soldiers.
💡 Understanding Market Sentiment
Each pattern reflects the behavior and emotions of traders. Mastering these can give you an edge in predicting market movements.