Types of Candlestick Patterns: An Overview

Candlestick charts have been used as a tool for technical analysis of financial markets for decades. This charting technique provides insight into the underlying supply and demand of the asset being traded. Candlestick patterns can provide valuable clues to traders as to where the market may be headed. In this article, we will discuss the most commonly used candlestick patterns that traders rely on.

What are Candlestick Patterns?

Candlestick patterns are formed by the price action of an asset over a specific period of time. For each time period, a candlestick is formed by showing the open, high, low, and close of that period. The candlestick is color-coded based on whether the closing price is higher or lower than the opening price. Various candlestick patterns are formed when multiple candlesticks are strung together.

Bullish Candlestick Patterns

Bullish candlestick patterns are formed when the price of an asset is trending upwards. These patterns suggest that the buyers are in control of the market, and that it is likely that the uptrend will continue.

One of the most commonly used bullish candlestick patterns is the hammer pattern. This pattern forms when a long shadow is formed below the real body of the candlestick, and it suggests that buyers have stepped in to support the asset at a certain price level.

Another important bullish candlestick pattern is the engulfing pattern. This pattern is formed when a small candlestick is followed by a larger bullish candlestick. The larger candlestick completely engulfs the previous candlestick, suggesting that the buyers have completely taken control of the market.

Bearish Candlestick Patterns

Bearish candlestick patterns are formed when the price of an asset is trending downwards. These patterns suggest that the sellers are in control of the market, and that it is likely that the downtrend will continue.

One of the most commonly used bearish candlestick patterns is the hanging man pattern. This pattern forms when a long shadow is formed above the real body of the candlestick, and it suggests that sellers have stepped in to push the asset down from a certain price level.

Another important bearish candlestick pattern is the shooting star pattern. This pattern is formed when a small candlestick is followed by a larger bearish candlestick. The smaller candlestick has a long upper shadow, suggesting that buyers have tried to push the asset up but have failed.

Candlestick patterns are an important tool for traders to use in technical analysis. By understanding the most commonly used patterns, traders can make informed decisions about buying and selling assets. While this article has provided a brief overview of the most commonly used patterns, there are many other patterns that traders can use to gain insight into market trends. By continuing to study these patterns, traders can become more proficient at reading price charts and predicting market movements.