Technical Analysing With Candlestick Pattern

By Prarit
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)

candlestick pattern
Evening Star
  • 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.