Bullish patterns form after a market downtrend and signal a possible price reversal. They indicate that it might 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 suggests that despite selling pressure during the day, buyers pushed the price back up. Green hammers are more bullish than red ones. A bullish move the next day confirms the reversal.
2. **Inverted Hammer**
- Similar to the hammer, but the long shadow is above the body. This pattern shows buying pressure followed by some selling, but buyers might soon take control. It's not as strong a signal as the regular hammer.
3. **Bullish Engulfing**
- This pattern involves two candles. The first is a short red candle, followed by a larger green candle that fully "engulfs" the red one. It suggests strong buying pressure that could signal an upward reversal.
4. **Piercing Line**
- Made up of two candles: a long red one followed by a long green one. The green candle opens lower than the red, but then rises to at least halfway up the previous day's candle, signaling strong buying pressure.
5. **Morning Star**
- A three-candle pattern: a long red candle, followed by a small-bodied candle, and then a long green candle. It suggests that the selling pressure is fading 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 downward. Traders might 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 a sell-off during the day, followed by buyers pushing the price back up. It suggests that the bullish momentum may be weakening.
2. **Shooting Star**
- The shooting star is like the inverted hammer but forms during an uptrend. It has a long upper shadow and a small body, suggesting that the market may soon reverse downward.
3. **Bearish Engulfing**
- A bearish engulfing pattern occurs when a small green candle is followed by a larger red candle that "engulfs" the green one. 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-bodied candle, and a long red candle. It suggests the bullish momentum is fading, and a downtrend might follow.
5. **Three Black Crows**
- This strong bearish pattern consists of three consecutive long red candles with short shadows. It signals increasing selling pressure, likely 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 one but closes below its midpoint. It indicates that bearish sentiment is taking over, suggesting a reversal in price direction.
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These candlestick patterns can help traders spot potential market reversals, either upward (bullish) or downward (bearish), and guide trading decisions.
