Candlestick charts are used to depict the price fluctuations of an asset for a specific time interval. They provide investors with complete insight into price movement in the market. The price change of an asset is depicted through different colors on the candlestick charts. Green depicts a rise in prices, whereas red depicts a fall in prices.
There is a wide range of patterns that candlestick charts depict. These patterns help traders gain insight into the market and make future investments accordingly. The most popular candlestick patterns are discussed below:
It is not just the price movement that is shown by the candlestick charts. Many seasoned traders refer to these charts to evaluate market sentiments and make future predictions about the market.
- The Hammer
It is the simplest pattern to recognize. In this pattern, the candlestick has a long lower wick at the bottom of a downtrend. The body is small, and there is very little or no upper wick. Hammer can either be red or green.
The hammer could represent a strong reversal trend and a possibility for an increase in prices.
- Inverted Hammer
It is also called inverse hammer; its working is the same as the hammer, the only difference being that the wick is located above the body.
An inverted hammer, at the bottom of the downtrend, indicates a possible upward reversal. The inverted hammer may point out that the buyers are set to take control of the market in near future.
- Three White Soldiers
This pattern is formed by three green candlesticks, which opens within the body of the preceding candle and close above the previous candle’s high.
The length of the candlestick and the height of the wicks can be used to conclude if the current trend will continue or will it retrace.
- The Morning Star
This pattern is formed by three candles in a downtrend. The first candle out of the three is a long red candle, indicating bearish momentum. The star has long wicks and a short body, and it closes below its previous closing price.
- The Hanging Man
It is the bearish equivalent of the hammer. It has a long upper wick, a small body, and is formed at the end of an uptrend.
The lower wick indicates the occurrence of a major sell-off, which was controlled by the bulls to drive the market higher. This sell-off after a sustained rally may be an indicator or warning of a bearish run as bulls are about to lose control of the market.
- Shooting Star
It comprises a single candlestick with a smaller wick and body. The upper wick is very high and occurs at the peak of an uptrend.
This pattern signifies a price rejection after a major price hike. It is the most frequently used bearish reversal signal.
- Three Black Crows
In this pattern, there are three successive red candlesticks, they open within the body of the previous candle and close at a level lower than the candle’s low.
It is a bearish equivalent of the three white soldiers.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investing.
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