Candlestick chart patterns are essential tools for traders to predict market movements. Here are some fundamental patterns to know:
1. Doji
Indicates market indecision. The opening and closing prices are equal. Types include Standard, Long-Legged, Dragonfly, and Gravestone.
2. Hammer and Hanging Man
Hammer: Appears at the bottom of a downtrend with a small body and long lower shadow, signaling a potential upward reversal.
Hanging Man: Appears at the top of an uptrend with a similar shape, indicating a potential downward reversal.
3. Engulfing Patterns
Bullish Engulfing: A small red candle followed by a larger green one, signaling an uptrend.
Bearish Engulfing: A small green candle followed by a larger red one, signaling a downtrend.
4. Morning Star and Evening Star
Morning Star: A three-candle pattern (long red, small-bodied, long green) indicating an upward reversal.
Evening Star: A three-candle pattern (long green, small-bodied, long red) indicating a downward reversal.
5. Three Black Crows and Three White Soldiers
Three Black Crows: Three consecutive long red candles signaling a strong downtrend.
Three White Soldiers: Three consecutive long green candles signaling a strong uptrend.
6. Shooting Star and Inverted Hammer
Shooting Star: Appears at the top of an uptrend with a small body and long upper shadow, indicating a potential downward reversal.
Inverted Hammer: Appears at the bottom of a downtrend with a similar shape, signaling a potential upward reversal.
Understanding these patterns can help traders make better decisions and enhance their trading strategies.