Introduction
Candlestick charts are a great way to analyze the current price action in your stocks and ETFs. However, there can be a lot of confusion when trying to determine if a particular pattern is valid or not. Fortunately, we have written an entire article on candlestick patterns that can help you understand how they work and how to identify them using our proprietary method. In this article we will go over the different types of candlestick patterns as well as their meanings so you can learn which ones may be valuable for your trading strategy!
What is a candlestick?
Candlesticks are a graphic representation of price movement. A candlestick consists of three components: the body, wick and shadow. The body represents the range between open and close prices while the wick shows whether a price is rising or falling by showing that it has gone up or down respectively (the candle color indicates this).
The most commonly used patterns in trading markets include:
- Bullish engulfing pattern (a bullish engulfing with one candle)
- Harami pattern (a bullish engulfing with two doji candles)
- Four-line charting method
Open-high-low-close (OHLC) bar
An OHLC bar is a line graph that shows the opening, high, low and closing price of a security during a specific time period. The OHLC bar can be used to create candlestick charts and identify candlestick patterns.
In order to read an OHLC bar properly, you must understand what each part of this line represents:
- Opening Price – This is where you find your first candle on your chart. It’s also where all new trades begin when trading stocks or forex pairs like USD/JPY or AUD/USD (or any other currency pair).
- High – This indicates how much money was invested in buying at this point in time during the trading session; it’s usually near your entry point but could be higher than that if there were multiple transactions occurring simultaneously within seconds of each other (such as bullish engulfing). On average, most traders will use either 10%+ below their entry point or slightly above depending on how they feel about their position at any given moment.”
How to identify a candlestick pattern:
Candlestick patterns are formed when the opening, high and low of a stock’s price move in one direction, then reverse. When this happens, you know that there is an upward or downward trend.
The body of the candlestick consists of:
- The open (the first point where price closed above/below)
- The high (the highest point reached during this period)
- The low (the lowest point reached during this period)
Section:There are three types of candlestick patterns:
There are three types of candlestick patterns:
- Single candle patterns. These occur when there is only one candle, and it’s a long or short period. The body of the candle can be either black or white (or if it’s not visible in your charting software, we’ll assume it’s black). If you see multiple candles with similar body lengths and tails, this is called a series.
- Two-candle patterns. These occur when two different candles show up at once during an uptrend or downtrend trendline—for example, two white candles might appear simultaneously on an upward trendline while another pair appears on a downward trendline (or vice versa). This can also happen if there are three or more successive pairs that alternate between black and white (in which case they’re called gartley patterns).
Single candle patterns
Single candle patterns are the most common pattern in candlestick charting. They’re easy to spot, and they can be traded in any time frame and on any chart.
Single candle patterns consist of an open, close and high/low reversal bar (also called a “shadow” bar). The open and close bars are always equal in length; however, the high/low reversal bars can be either long or short depending on whether there was an upward or downward movement for each period during which those candles formed part of your pattern formation process.
Two-candle patterns
There are two types of candlestick patterns. The first is a bullish reversal pattern, which appears when the price of an asset reverses direction and moves in the opposite direction compared to its previous trend. For example, if you had bought Apple shares at $100 and sold them at $90, then it would be considered a bullish reversal because your position was reversed (you went from long to short). This happens because buyers entered after prices fell while sellers exited before they could get out on their own terms (they were forced out by downward pressure). In this case, buyers recognize that prices will likely drop further when they exit their positions so they decide on holding onto their shares longer than normal – hence why we call this type of pattern “bullish.”
Three-candle patterns
Three-candle patterns are a little more complicated than two-candle patterns. Let’s look at how to read a three-candle pattern:
- The first candle (the body or “real body”) represents the price range for the period. It can be either above or below the high and low of that day’s trading session. For example, if you see an uptrend with three green candles, they would represent prices ranging between $100 and $110 per share on any given day during that trend; if there are no breaks in this trend, then it will continue until it reaches its maximum height—either at $100 or above it again when we get another bullish signal from another bullish candle which marks our third wave down into new territory before moving up once again towards our target price point).
Candlestick patterns represent price direction and momentum.
When you look at a candlestick pattern, you’re looking at price movement over a given period. A candlestick is a graphical representation of price movement over time and can be used to identify the current trend and predict future price movement.
Candlesticks are commonly used in technical analysis as they provide valuable information on how an asset’s price has moved over time through its opening and closing prices (the high/low) as well as its close-to-open or open-to-close ranges within those two periods (the body).
Conclusion
Candlestick patterns are a great way to look at price trends and market sentiment. They can help you identify when a stock is going up, down or sideways and give you an idea of what type of trade is most likely to succeed.