5 Important Candle Patterns You Need to Knowđź“š
🟢Candlestick patterns and models in technical analysis can be used to predict future price movement.
⚠️There are many different candle patterns. Not all of them work equally well and often their form is quite subjective. Therefore, it is not necessary to make trading decisions based on patterns alone. It would be best to combine them with support and resistance levels, moving averages or other technical analysis indicators that strengthen signals to enter the market.
❗️Remembering a lot of different candle patterns is not as useful as understanding what is really behind their appearance, and who is currently controlling the situation in the market — bulls or bears.
Let's look at the most popular and easiest to define patterns.
âś…Bearish Engulfing
It is formed during the upward momentum of the price at the local highs of the chart. The first small green candle of the pattern indicates that the bulls are already tired and they need a break. The large red candle that appeared next, swallowing the green one with its body, indicates that the bears took advantage of the situation and actively moved into a counteroffensive.
Further movement of quotations downwards leads to the beginning of a downward correction. Confirmation of the beginning of the downward movement will be the price falling below the minimum of the second, large bearish candle pattern.
âś…Bullish Engulfing
It is formed during the downward movement at the local minima of the price chart. The first small red candle of the pattern shows that the bears' strength is already running out, after which a large green candle appears, completely absorbing the body of the first one. This suggests that the bulls felt the weakness of the bears and actively went on the offensive.
Further upward movement of the price leads to the beginning of an upward correction. Confirmation of its beginning is the growth of quotations above the maximum of the second, large bullish candle pattern.
âś…Doji
In fact, doji can be one of the most important patterns in combination with other technical analysis tools.
It shows indecision in the market and at its breakdown - it is possible to draw conclusions about the further probable price movement.
âś…Shooting Star
A clear sign of the dominance of sellers.
After the opening of the candle, prices moved towards growth, but at the closing of the candle, sellers began to dominate buyers and the price closes near or below the opening price.
The tail of this candle shows that it was in it that sellers began to "Crush" buyers.
With such a pattern, there is a possibility of further decline.
âś…Pin bar
A clear sign of the dominance of buyers.
After the opening of the candle, prices moved downward, but at the close of the candle, buyers began to dominate sellers and the price closes near or above the opening price.
The tail of this candle shows that it was in it that buyers began to "crush" sellers.
With such a pattern, there is a possibility of further growth.
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