Candlestick Chart Part 2 : ReversalsHello everyone, as we all know the market action discounts everything :)
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Today's video will be about the Candlestick Chart : Reversal Patterns.
So lets start by talking about the different types of Patterns :
Bullish Reversal Patterns
Bearish Reversal Patterns
And they are divided into 3 groups :
Weak Patterns
Reliable Patterns
Strong Patterns
We Start with the Weak Reversals :
1) Dragonfly Pattern :
A dragonfly doji candlestick is a candlestick pattern with the open, close, and high prices of an asset at the same level. A dragonfly doji pattern does not appear constantly. It is used as a technical indicator that signals a potential reversal of the asset’s price.
2) Hammer & Hanging Man Patterns :
The Hammer is a bullish reversal pattern that forms during a downtrend. It is named because the market is hammering out a bottom.
When the price is falling, hammers signal that the bottom is near and the price will start rising again.
The long lower shadow indicates that sellers pushed prices lower, but buyers were able to overcome this selling pressure and closed near the open.
The Hanging Man is a bearish reversal pattern that can also mark a top or strong resistance level.
When the price is rising, the formation of a Hanging Man indicates that sellers are beginning to outnumber buyers.
The long lower shadow shows that sellers pushed prices lower during the session.
Buyers were able to push the price back up some but only near the open.
3) Inverted Hammer & Shooting Star Patterns :
The Inverted Hammer occurs when the price has been falling suggests the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher.
However, sellers saw what the buyers were doing, said "No!" and attempted to push the price back down.
The Shooting Star is a bearish reversal pattern that looks identical to the inverted hammer but occurs when the price has been rising.
Its shape indicates that the price opened at its low, rallied, but pulled back to the bottom.
4) Dark Cloud Pattern :
A 2-candle pattern. The first candle is bullish and has a long body. The second candlestick should open significantly above the first one’s closing level and close below 50% of the first candlestick’s body. The sell signal is moderately strong.
5) Piercing Pattern :
A 2-candle pattern. The first candlestick is long and bearish. The second candlestick opens with a gap down, below the closing level of the first one. It’s a big bullish candlestick, which closes above the 50% of the first candle’s body. Both bodies should be long enough.
6) Upside Gap Three Method :
The upside gap three methods candlestick pattern is a bearish continuation pattern that only occurs during an uptrend. It consists of three candles. The first two candles are long and white in the direction of the prevailing trend. The second black candle creates an upside gap. The third candle fills the gap between the first and the second candle.
7) Downside Gap Three Method :
The downside gap three methods candlestick pattern appears during a downtrend and consists of three candles. The first two candles have a gap down between them while the third candle covers the gap between the first two. The gap between the first two candles simply gets filled.
8) Bearish Harami Pattern :
A 2-candle pattern. The body of the second candle is completely contained within the body of the first one and has the opposite color.
9) Bullish Herami Pattern :
A 2-candle pattern. The body of the second candle is completely contained within the body of the first one and has the opposite color.
Now Lets Talk about the Reliable Reversals :
1) Bullish Engulfing Pattern :
A 2-candle pattern appears at the end of the downtrend. The first candlestick is bearish. The second candle should open below the low of the first candlestick low and close above its high.
2) Bearish Engulfing Pattern :
A 2-candle pattern. The first candlestick is bullish. The second candlestick is bearish and should open above the first candlestick’s high and close below its low.
3) Tower Top Pattern :
The tower top is a reversal pattern that occurs at high price levels. Typically one or more long bullish candlesticks are followed by a few smaller real body candlesticks and then the pattern is completed with one or more large bearish candlesticks.
4) Tower Bottom Pattern :
The tower bottom is a reversal pattern that occurs at low price levels. There is one or more long bearish candlesticks followed by a few smaller body candlesticks and then concluded with one or more large bullish candlesticks.
5) Bullish Abandoned Baby Pattern :
The bullish abandoned baby is a pattern that appears at the end of a downtrend and signals reversal to an uptrend. Simply put, it signals an end of the selling pressure of the bears and return of the bulls in the market.
This pattern consists of three candlesticks: the first candle has a black (or red) big body, the second is a small and bearish candle – or a Doji, and the third is white (or green) candle.
6) Bearish Abandoned Baby Pattern :
The bearish abandoned baby is a reversal pattern that forms during an uptrend. It is characterized by three candles, where the first candle is long bodied and white/green.
The second candle is a Doji that gaps above the close of the first bar in the series. The third candle opens below the close of the second bar and is long bodied and black/red.
7) Dumpling Top Pattern :
A dumpling top occurs when small real body candlesticks slowly rise and then move in a neutral to downward direction. The dumpling top pattern is complete when there is a bearish candlestick that gaps down from the other candlesticks.
8) Fry Pan Bottom Pattern :
The opposite of the dumpling top is the fry pan bottom pattern. The fry pan bottom occurs when small real body candlesticks slowly move downward and then move in a neutral to upward direction. The fry pan bottom pattern is complete when a bullish candlestick gaps up from the rest of the candlesticks.
9) Bullish Belt Hold Pattern :
A bullish belt hold shows up in downtrends. The pattern can be recognized by one long, full-bodied candlestick that is bullish and opens at a new recent low. The bullish belt hold candle is expected to have a flat or nearly flat bottom. The top has a small shadow, relative to the length of the body.
10) Bearish Belt Hold Pattern :
The bearish belt hold is the complete opposite and it comes up in uptrends. To detect it, look for a long full-bodied, bearish candlestick that stands out at the top of an uptrend because it will get to a new recent high and it should be noticeably longer than the other candles.
11) Tweezer Top Pattern :
The Tweezer Top pattern is a bearish reversal candlestick pattern that is formed at the end of an uptrend.
It consists of two candlesticks, the first one being bullish and the second one being bearish candlestick.
Both the tweezer candlestick make almost or the same high.
12) Tweezers Bottom Pattern :
The Tweezer Bottom candlestick pattern is a bullish reversal candlestick pattern that is formed at the end of the downtrend.
It consists of two candlesticks, the first one being bearish and the second one being bullish candlestick.
Both the candlesticks make almost or the same low.
And Last but not least The Strong Reversal Patterns :
1) Three White Soldiers Pattern :
A 3-candle pattern. There’s a series of 3 bullish candles with long bodies. Each candle should open within the previous body, better above its middle. Each candle closes at a new high, near its maximum. The reliability of this pattern is very high, but still, a confirmation in the form of a white candlestick with a higher close or a gap-up is suggested.
2) Three Black Crows Pattern :
A 3-candlestick pattern. There’s a series of 3 bearish candles with long bodies. Each candle opens within the body of the previous one, better below its middle. Each candle closes at a new low, near its minimum. The reliability of this pattern is very high, but still, a confirmation in the form of a bearish candlestick with a lower close or a gap-down is suggested.
3) Morning Star Pattern :
A 3-candle pattern. After a long bearish candle, there’s a bearish gap down. The bears are in control, but they don’t achieve much. The second candle is quite small and its color is not important, although it’s better if it’s bullish. The third bullish candle opens with a gap up and fills the previous bearish gap. This candle is often longer than the first one.
4) Evening Star Pattern :
A 3-candle pattern. After a long bullish candlestick, there’s a bullish gap up. The bulls are in control, but they don’t achieve much. The second candlestick is quite small and its color is not important. The third bearish candle opens with a gap down and fills the previous bullish gap. This candle is often longer than the first one.
5) Bullish Three Line Strike Pattern :
A bullish three-line strike is made up of four candles. Of these, the first three are bullish, while the last is bearish. It is made up of three strong bullish candles that progressively end higher followed by a final strike candle. The strike candlestick is bearish and begins at or higher than the third candle but closes at least lower than the open of the first candle.
6) Bearish Three Line Strike Pattern :
A bearish three-line strike is a four candle continuation pattern that comes up in a bearish trend. The first three candles are bearish, while the last candle is positive and ends above the highest close of the previous three candles.
I Do wanna mention General Reversal Patterns :
Three Mountains is the same as Triple Top Pattern
Three Rivers is the same as Inverted Triple Top Pattern
Buddha Top is the same as Head and Shoulders Pattern
Inverted Buddha is the Same as Inverted Head and Shoulders Pattern
I hope that I was able to help you understand Reversal Patterns in Candlestick Charts better and if you have any more questions don't hesitate to ask.
Hit that like if you found this helpful and check out my other video about the Moving Average, Stochastic oscillator, The Dow Jones Theory, How To Trade Breakouts, The RSI , The MACD , The Bollinger Bands , The Different Types Of Trading Strategies, Candlestick Charts Part 1 links will be bellow
