Candlesticks patterns

Candlesticks patterns

Lesson Attachments

Doji

Doji candlesticks have the same open and close price or at least their bodies are extremely
short. The Doji should have a very small body that appears as a thin line. Doji candles suggest indecision or a struggle for turf positioning between buyers and sellers. Prices move above and below the open price during the session, but close at or very near the open price. Neither buyers nor sellers were able to gain control and the result was essentially a draw.

There are four special types of Doji candlesticks. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign.

Long-legged

Long-legged doji has a long upper and lower shadow, which is almost equal in length. It’s important to observe the candle’s close with the center point.  Close bellow the center point shows us weakness.
A long-legged doji indicates that price moves above and under the opening price level.

Dragonfly doji

This doji indicates that sellers moved the price lower during the session, but the end of the session buyers pushed price back to the opening level. It looks like a T letter with a long low shadow.

Gravestone doji

Gravestone candlestick is the opposite of the Dragonfly doji. It looks like a reversed T letter. It forms when the open, low and close price are the same. This doji shows that buyers pushed the price higher during the session and by the end of the session, sellers moved price back down to the opening level.

Four price doji

Four price doji formation identified when the length of the candlestick body is equal or short and has no shadows up or down. This type of candlestick is very rare. This doji shows us that uncertainty on the market.

The spinning top

Candlesticks with a long upper shadow, long lower shadow and small real bodies are called spinning tops. The color of the real body is not very important. The pattern indicates the indecision between the buyers and sellers. The small real body (whether hollow or filled) shows little movement from open to close, and  the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand. Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the result was a standoff.

If a spinning top forms during an uptrend, this usually means there aren’t many buyers left and a possible reversal in direction could occur. If a spinning top forms during a downtrend, this usually means there aren’t many sellers left and a possible reversal in direction could occur.

The hanging man

The hanging man is a bearish candlestick that forms at the end of an uptrend. It appears when is a significant sell-off near the markets high, but buyers can push the price back up so it closes nearby the opening level. Large sell-offs are seen as an early indication that buyers are losing control.
As I mentioned before, this candlestick is bearish if it occur after strong uptrend.
Hanging man has no or almost no upper shadow and a lower shadow which is at least two times long as the body of the candle.
The lower half of the candles shadow will give is the pressure of selling. Good price action trade setup is when this pattern is at resistance level. First you simply highlight the hanging man with rectangle. Draw from the top shadow to the lower shadow and stretch the rectangle a little to the right.

The hammer (pin bar)

The hammer look exactly like a hanging man, but have totally different meanings.  Both have little bodies (green or red), long lower shadows and no or almost none upper shadow.
It’s a bullish reversal candlestick formed at the end of the downtrend. When price is falling a hammer signals that bottom is near and the price will likely go up. The long lower shadow indicates that sellers tried to push price lower, but buyers were to strong and push price little over the opening level. This candle is strong reversal indicator, but do not rush in buy right away when you see the hammer, but wait for more bullish confirmations.

 

Shooting star

The shooting star is created when the open, low and close are almost the same price. There is a long upper shadow that is twice as long as the body. When the low and the close are the same, a bearish shooting star is formed and and it is a strong formation because the bears were able to reject the price.
The longer upper shadow implies that the market tested to find where resistance is located. When market found the resistance or the highs of the days, bears start pushing price lower. That’s why candle shows us a close near opening level.
The shooting star candle indicates that the uptrend is about to end and could turn in a downtrend.

Tweezer tops and bottoms

This are a duo candlestick reversal patterns. This type of candlesticks pattern is usually spotted after a long downtrend or uptrend. It indicates reversal soon.
First twizzer candle has to be in line with a trend. So when market is in downtrend, first tweezer has to be bearish (red). Second tweezer is the opposite of the trend and has to be bullish (green).
The shadows of twizzers should be of equal length. Twizzer bottoms have to have the same bottoms and twizzer tops have to have the same highs.

The marubozu

The marubozu candle have no shadow attached to the closing price of their body. The candle is green (bullish) or reed (bearish). Depend on the market being bullish or bearish. The high/low is the same price as the open and close of the market. The green (bullish) marubozu is a long green body without shadow on closing (on top). It’s a very bullish candle and indicates that buyers were in control.

The red (bearish) marubozu consist of a long red body with no shadow at the closing point (on the bottom). This is a very bearish candle and indicates that sellers were in control.
This is very strong reversal indicator on higher time frame (daily&weekly).

Bullish engulfing

A bullish engulfing usually occurs at the bottom of a downtrend or consolidation range at support. It forms when a smaller red candlestick is followed by a bigger bullish candlestick. This pattern indicates change in a downtrend. The bigger the engulfing means bigger reversal.

 

Bearish engulfing

A bearish engulfing usually occurs at the top of an uptrend or consolidation range at the resistance. It forms when a smaller green candlestick is followed by a bigger red candlestick. This candlestick indicates change in a uptrend. The bigger engulfing is, the bigger reversal is.

The morning star

The morning star is triple candlestick pattern that you can usually find it at the end of a trend. The morning star starts with a red (bearish) candlestick which means selling acceleration. Next candlestick has to be a doji, spinning top or hammer (pin bar). The second candlestick represent indecision and a stop of the downtrend acceleration. The final candlestick is a green (bullish) that must close within the upper 40% of the first red candle. After final, bullish candlestick you can place a buy trade at the beginning of the following candles.

The evening star

The evening star is triple candlestick formation that you can usually find it at the end of an uptrend. The evening star starts with a green (bullish) candlestick which means buying acceleration. Next candlestick has to be a doji, shooting star or a spinning top. The second candlestick represent indecision and stop of the uptrend acceleration. The final candlestick is red (bearish) that must close within the lower 40% of the first bullish candlestick. After final, bearish candlestick you can place a sell trade at the beginning of the following candlesticks.

The inside bar

This pattern consist of two candlesticks and the second candlestick is completely covered by the range of the first candle which is called mother candle.  Inside bar indicates indecision or consolidation. Pattern usually occurs at support or resistance, when market consolidates after making a strong move.
The best way to trade this pattern is to draw highs and lows of mother candle. Market will break through highs or lows and move in break direction. Best way to trade is to set a buy stop few pips above the highs of mother candle or sell stop few pips bellow lows of mother candle. Stop loss should be placed at the opposite end of the mother candle. 15 pips above for sell and 15 pips under for buy trade.