Candlestick charts mostly indicate reversal or indecision (i.e. a potential reversal), while chart patterns such as double top, double bottom, head and shoulders, cup and handle, triangles and many others tend to indicate continuation (a pause in a trend before resuming), reversal, bounce or reversal.
Chart patterns are classified according to the types of Japanese candlesticks, which are classified as bullish candlesticks, bearish candlesticks, or neutral candlesticks.
Bullish Reversal Candlestick Patterns
Bullish patterns may form after a downtrend in the market and indicate a reversal in price action. They are a chart pattern indicator for traders to consider opening a buy position to take profit from any upward trend.
Bearish Reversal Candlestick Patterns
Bearish candlestick patterns usually form after an uptrend and indicate a resistance point. Extreme pessimism about the market price often leads traders to close long positions and open short positions to profit from the price decline.
Continuation of Japanese Candlestick Patterns
If the candlestick pattern does not indicate a change in the market trend, the pattern is known as a continuation. This can help traders identify a period of rest in the market when there is market indecision or neutral price action.
Practice reading Japanese candlestick patterns
For all of these patterns, you can take a suitable position because this enables you to sell as well as buy – meaning you can speculate on markets that are falling as well as markets that are rising. You may want to enter a “sell” position during a bearish reversal, or a “buy” position during a bullish reversal – it depends on the chart pattern and the market analysis you have done.
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