- Trading Candlestick Patterns
- Understanding a Candlestick Chart
- The 5 Most Powerful Candlestick Patterns
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The three-line strike pattern refers to three white candlesticks occurring on a daily chart three days in a row, indicating that prices closed higher for three simultaneous days. Three-line strikes usually occur at the end of a downtrend and may, therefore, indicate that a reversal might be in order. Three-black crows are a common reversal indicator in an uptrend and are indicated by three black consecutive candlesticks on a daily chart where the closing prices were lower than the opening price of the day. Formed of three consecutive black candlesticks with long bodies, these indicate the lack of buying conviction in the market which allowed bears to successfully push prices lower.
Evening star patterns usually occur at the top of an uptrend and signify that a trend reversal is about to occur.
Evening stars consist of three candlesticks, with the first candlestick having a significantly large green or white body, indicating that prices closed higher than the opening level. The second candlestick opens higher after a gap, meaning that there is continued buying pressure in the market. The second candlestick in an evening star pattern is usually small, with prices closing lower than the opening level.
The third and final candlestick in an evening star opens lower after a gap and signifies that selling pressure reversed gains from the first day's opening levels. When used in conjunction with other forms of analysis, candlestick patterns can be a useful indicator of potential trend reversals and price breakouts in the market, helping you to build a stronger and more effective trading strategy. The material whether or not it states any opinions is for general information purposes only, and does not take into account your personal circumstances or objectives.
Trading Candlestick Patterns
Nothing in this material is or should be considered to be financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. What is ethereum?
What are the risks? Cryptocurrency trading examples What are cryptocurrencies? The advance of cryptos. How do I fund my account? How do I place a trade? Do you offer a demo account? How can I switch accounts? Search for something. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Candlestick charts are more visual, due to the color coding of the price bars and thicker real bodies, which are better at highlighting the difference between the open and the close.
The above chart shows the same exchange-traded fund ETF over the same time period. The lower chart uses colored bars, while the upper uses colored candlesticks. Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of bar charts.
Understanding a Candlestick Chart
Candlesticks are created by up and down movements in the price. While these price movements sometimes appear random, at other times they form patterns that traders use for analysis or trading purposes. There are many candlestick patterns. Here is a sampling to get you started. Patterns are separated into bullish and bearish.
The 5 Most Powerful Candlestick Patterns
Bullish patterns indicate that the price is likely to rise, while bearish patterns indicate that the price is likely to fall. No pattern works all the time, as candlestick patterns represent tendencies in price movement, not guarantees. This action is reflected by a long red real body engulfing a small green real body.
The pattern indicates that sellers are back in control and that the price could continue to decline. This is reflected in the chart by a long green real body engulfing a small red real body. With bulls having established some control, the price could head higher. It is identified by the last candle in the pattern opening below the previous day's small real body.
The small real body can be either red or green. The last candle closes deep into the real body of the candle two days prior. The pattern shows a stalling of the buyers and then the sellers taking control. More selling could develop. This is not so much a pattern to act on, but it could be one to watch. The pattern shows indecision on the part of the buyers. If the price continues higher afterward, all may still be well with the uptrend, but a down candle following this pattern indicates a further slide.
The bullish harami is the opposite of the upside down bearish harami. A downtrend is in play, and a small real body green occurs inside the large real body red of the previous day. This tells the technician that the trend is pausing. If it is followed by another up day, more upside could be forthcoming. A bearish harami cross occurs in an uptrend, where an up candle is followed by a doji —the session where the candlestick has a virtually equal open and close.
The doji is within the real body of the prior session. The implications are the same as the bearish harami. A bullish harami cross occurs in a downtrend, where a down candle is followed by a doji. The implications are the same as the bullish harami. Let's look at a few more patterns in black and white, which are also common colors for candlestick charts. This pattern starts out with what is called a "long white day. The fifth and last day of the pattern is another long white day.
Even though the pattern shows us that the price is falling for three straight days, a new low is not seen, and the bull traders prepare for the next move up. A slight variation of this pattern is when the second day gaps up slightly following the first long up day.
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Everything else about the pattern is the same; it just looks a little different. When that variation occurs, it's called a "bullish mat hold.
The pattern starts out with a strong down day. This is followed by three small real bodies that make upward progress but stay within the range of the first big down day.
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The pattern completes when the fifth day makes another large downward move. It shows that sellers are back in control and that the price could head lower. The line extending from the top of the body is the shadow. The shadow indicates the highest trading price for the period. The line extending from the bottom of the body is the tail. The tail indicates the lowest trading price for the period. Select the time frame you want to use.
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Candles reflect currency pair price movements for a variety of time frames from one minute to several months. Look at the different color and length for each candle. The candle body is colored white or green when the currency pair price moves upward. The candle body is colored red or black when the currency pair price moves downward. The body length indicates the strength of the price move. A long red or black candle body is a bearish signal. When prices move in a narrow range, the candle body is short.
Look at the chart to see if there is a trend. A group of small squat green or white candles with long tails at the top can indicate the bull trend is weakening and may reverse.