Bullish and Bearish Candlestick: Reading and Analysis in the Trading World
In the world of technical analysis of financial markets, Japanese candlesticks are a powerful tool for understanding market psychology and price movements. The “bullish candle” and the “bearish candle” are two of the most prominent candlestick patterns that provide traders with clear signals about potential market trends.
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Bullish Candle: Engulfing Candle
It is a candle that indicates the dominance of buyers in the market, where the closing price is higher than the opening price.
Its components:
1. Real Body:
Shows the difference between the opening and closing price.
The body color is often green or white, indicating upward movement.
2. Shadows:
The upper shadow represents the highest price reached during the period.
The lower shadow represents the lowest price.
Its significance:
It expresses strong buying pressure, which means the upward trend is likely to continue, especially if it appears in major support areas or after a downtrend.
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Bearish Candle:
swallowing
It is a candle that reflects the dominance of sellers, where the closing price is lower than the opening price.
Its components:
1. Real body:
Shows the difference between the opening and closing price.
It is usually red or black in color, indicating a downward movement.
2. Shadows:
The upper shadow represents the highest price.
The lower shadow represents the lowest price.
Its significance:
It indicates strong selling pressure, which means the decline is likely to continue, especially if it appears at strong resistance levels or after an upward trend.
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How do we read a candle in the context of the market?
1. Where the candle appears:
If a bullish candle appears at a support area, it may indicate the beginning of an uptrend.
If a bearish candle appears at resistance, it may indicate a bearish reversal.
2. Volume:
If the candle is accompanied by a large trading volume, it is considered more reliable.
3. Compound formations:
An individual candle can be part of a larger pattern such as a "bullish engulfing" or a "bearish engulfing".
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Practical examples:
1. Long bullish candle:
If it appears after a prolonged period of decline, it may indicate a trend reversal.
2. Long bearish candle:
If it appears after a significant rise, it may indicate the beginning of a correction.
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a summary:
Bullish and bearish candlesticks are the building blocks of technical analysis. Successfully reading them depends on understanding the overall market context, such as support and resistance levels, and the overall trend. By combining these signals with other indicators such as moving averages or the relative strength index, traders can improve the accuracy of their investment decisions.
