Candlestick patterns[1] are important tools in technical trading[2]. Understanding them allows traders to interpret possible market trends and form decisions from those inferences. There are various types of candlestick patterns which can signal bullish or bearish movements. This article will briefly touch upon what candlestick patterns are and introduce the top 10 formations all traders should know to trade the markets with ease.
Try out our interactive trading quiz on forex patterns[3]!
What are candlestick patterns?
A candlestick is a single bar which represents the price movement of a particular asset for a specific time period. The information it displays includes the open, high, low and close for that time period.
Candlestick patterns take into account one or more candlesticks to assist technical traders[4] in developing inferences about future movements and price patterns of the underlying asset. These are displayed graphically on a chart, which is utilized for market analysis. Our guide to reading candlestick charts[5] is a great place to start to learn how to interpret candlesticks for trading.
Candlestick Patterns can be Bullish or Bearish
In order to recognize and apply the most commonly used candlestick patterns to a trading strategy, traders need to understand how the inclination of these patterns can affect the market direction (trend). The tables below summarize the two main categories of price movement that candlesticks can indicate. Many of these patterns are featured in our top 10 list below.
Bullish Candlestick Patterns:
|
Candlestick Pattern |
Direction |
|
Morning Star |
Bullish (Reversal) |
|
Bullish Engulfing |
Bullish (Reversal) |
|
Doji |
Bullish/Bearish (Indecision) |
|
Hammer |
Bullish (Reversal) |
|
Bullish Harami |
Bullish (Reversal) |
|
Piercing Pattern |
Bullish (Reversal) |
|
Inside Bars |
Bullish (Continuation) |
|
Long Wicks |
Bullish/Bearish |
