Technical Analysing With Candlestick Pattern
Introduction
In the beginning, we are discussing one of the most important weapon of the stock market. Candlestick pattern plays a vital role in the stock market for the investor, financiers, brokers, technical analyst, etc.
History of Candlestick Pattern
- Candlestick patterns were first introduced by Munehisa Homma (Japanese rice trader) in the 18th century.
- In the US stock market, Steve Nison introduced these candlestick patterns over 40 to 50 years ago.
- The other candlestick guru is Greg Morris & Stephen Bigalow.
- There are over 100 candlestick patterns.
Types of Candlestick Pattern
There are many types of candlestick Pattern are
Bullish Candle
A bullish candle can be green or white, it has four components open price, close price, higher shadow, lower shadow. If price closes above open price its a bullish candle. The longer the body the stronger the trade sentiments. The shorter the body the weaker the trade sentiments.
Bearish candle
A bearish candle can red or black, it also has four components open price, close price, higher shadow, lower shadow. If price closes below the open price its a bearish candle. The longer the body the stronger the trade sentiments. The shorter the body the weaker the trade sentiments.
Indecisive candle
- DOJI body is very a small body, hardly 10% of total volatility
- If Doji made at the top so there should be a chance of downward or bearish sentiments.
- If Doji made at the bottom so there should be a chance of upward or bullish sentiments.
- Other types of Doji’s – Dragonfly, Tombstone, Long-legged
Spinning top
- Bulls & Bears have equal power.
- .Body is less than 1/3rd of the candle range H-L.
- The tails are longer than the body
Bullish Engulfing(70% accuracy)
- Candle 1 is a bearish candle & candle 2 completely engulfs the body of candle 1.
- Stock in a downtrend or a consolidating.
- The pattern suggests that downtrend has lost momentum & bulls may gain strength.
- Confirmation is required.
Bearish engulfing(70 % accuracy)
- Candle 1 is bullish candle & candle 2 completely engulfs the body of candle 1.
- Stock in an uptrend or a consolidating.
- The pattern suggests that uptrend has lost momentum & the bears may gain its strength.
- Confirmation is required.
MORNING STAR(90% accuracy)
- The first candle is a long red candle & second candle (Doji or spinning top) gaps down and trade within a small range & close at or near its open.
- The third candle is green.
- The stock has in a downtrend or in a consolidating way.
- The pattern suggests that trading sentiment has changed & the probability of reversal trend is high.
- No confirmation is required.
Evening star(90% accuracy)
- The first candle is a long green candle & second candle (Doji & spinning top) gaps up & trades within a small range & closes at or near its open.
- The third candle is red.
- The stock has an uptrend or in a consolidating way.
- The pattern suggests that trading sentiment has changed & the probability of reversal trend is high.
- No confirmation is required.
Bullish Hammer(80% accuracy)
- This is a single candlestick pattern.
- A candle can be bullish or bearish.
- Signal considered stronger in a bullish candle.
- Candle body is less than ⅓ of the range H-L.
- Stock in a downtrend.
- Longtails implies sharp sell-off after open but the bulls rallied & won the battle.
- It suggests that more buying to come.
- Required confirmation.
Hanging man(70% accuracy)
- It is a single candlestick pattern.
- A candle can be bullish or bearish.
- Signal considered stronger in a bearish candle.
- Candle body is less than ⅓ of the range H-L.
- Stock in an uptrend.
- Its required confirmation.
Three White Soldiers(70 % accuracy)
- Three white soldiers or green candles occur, each candle close above the previous candle.
- Each opens within the body of the previous candle.
- The pattern suggests that the market has been selling off too long & buyers are beginning to come back into it.
- No confirmation is required.
Three black Soldiers/Crows(70% accuracy)
- Three black or red candle occurs, each candle closes below the previous candle.
- Stock is in an uptrend.
- The pattern suggests that the market has been buying for too long & sellers are beginning to come back into it.
- No confirmation is required.
Conclusion
In last, I can only say that you should follow these candlestick patterns and everybody improves their skill in candlestick pattern. So, it will help you to improve analysis.