Candlestick Patterns for Trading

Introduction

• Topic: Discussing various candlestick patterns used for trading.
• Purpose: Help readers understand and use candlestick patterns to predict chart direction and become successful traders.

Engulfing Candle

• Definition: A candlestick in the opposite color of the previous candle that engulfs it.
• Types:
  • Bullish Engulfing Candle:
    • Opens at/ lower than the previous candle's close.
    • Closes above the previous candle's open.
    • Sign of price reversal upwards.
  • Bearish Engulfing Candle:
    • Appears at resistance.
    • Engulfs the previous green candle, indicating a short position.
• Note: Use with other tools like support and resistance, indicators.

Momentum Candle

• Definition: A candle 2-3 times bigger than the previous candles.
• Usage: Effective in choppy markets.
• Example:
  • Breaks sideways movement, indicating continuation in that direction.

Multiple Candlestick Pattern

• Definition: Three or more candles with wicks going in one direction.
• Usage: Combine with support and resistance.
• Examples:
  • Upward Movement: Multiple downward wicks at support indicate an upward bounce.
  • Downward Movement: Multiple upward wicks at resistance indicate a downward trend.

Doji Candle

• Definition: A thin-bodied candle with wicks on both sides.
• Types: Regular, Long-legged, Dragonfly, Gravestone.
• Usage: Indicates market uncertainty and potential reversal.
• Example: Confirm direction after 2-3 candles of the same color post-Doji.

Hammer

• Definition: Candle with a decent-sized body and long wick.
• Usage: Indicates bullish sign and potential upward movement.
• Similar Pattern: Shooting Star (indicates a downward movement).

Tweezer

• Definition: Red candle followed by green, or vice versa, both with wicks.
• Usage: Indicates support or resistance holding.
• Example: Tweezer at support indicates upward movement, at resistance indicates downward movement.

Marubozu

• Definition: A big solid candle without wicks.
• Types: Bullish (green) and Bearish (red).
• Usage: Confirms the continuation of a trend.
• Example: Typically seen during strong trends.

Bonus Tip

• Use Trading View’s indicators to easily spot candlestick patterns.
• This tool can notify you of various patterns without memorizing them.

Conclusion

• Value: Leveraging candlestick patterns for trading insights.
• Warning: Watch out for false breakouts.
• Further Learning: Suggested video on avoiding false breakouts.