Candlestick Patterns Flashcards

Flashcards about candlestick patterns

Candlestick

A way of displaying information about an asset’s price movement.

Body

Represents the open-to-close range in a candlestick.

Shadow

Indicates the intra-day high and low in a candlestick.

Colour

Reveals the direction of market movement in a candlestick – green/white indicates price increase, red/black indicates price decrease.

Bullish Patterns

Form after a market downtrend and signal a reversal of price movement; an indicator to consider opening a long position.

Hammer

Formed of a short body with a long lower shadow, found at the bottom of a downward trend. The lower shadow must be at least twice the length of the body.

Inverted Hammer

Upper shadow is long, at least twice the length of the body, while the lower shadow is short. It indicates a buying pressure, followed by a selling pressure that was not strong enough to drive the market price down; not a very reliable pattern.

Bullish Engulfing

Formed of two candlesticks – the first candle is a short red body that is completely engulfed by a larger green candle.

Morning Star

A sign of hope in a bleak market downtrend; a three-candlestick pattern – one short-bodied candle between a long red and a long green candle. Traditionally, the ‘star’ will have no overlap with the longer bodies.

Three White Soldiers

Occurs over three days and consists of consecutive long green (or white) candles with small shadows, which open and close progressively higher than the previous day.

Bearish Candlestick Patterns

Usually form after an uptrend and signal a point of resistance. Heavy pessimism about the market price often causes traders to close their long positions, and open a short position to take advantage of the falling price.

Hanging Man

The bearish equivalent of a hammer; it has the same shape but forms at the end of an uptrend. The lower shadow must be at least twice the length of the body

Shooting Star

The same shape as the inverted hammer, but is formed in an uptrend: it has a small lower body, and a long upper shadow which must be at least twice the length of the body.

Bearish Engulfing

Occurs at the end of an uptrend; the first candle has a small green body that is engulfed by a subsequent long red candle. It signifies a peak or slowdown of price movement, and is a sign of an impending market downturn.

Evening Star

A three-candlestick pattern that is the equivalent of the bullish morning star. It is formed of a short candle sandwiched between a long green candle and a long red candlestick.

Three Black Crows

Comprises of three consecutive long red candles with short or non-existent shadows. Each session opens at a similar price to the previous day, but selling pressures push the price lower and lower with each close.

Dark Cloud Cover

Indicates a bearish reversal – a black cloud over the previous day’s optimism. It comprises two candlesticks: a red candlestick which opens above the previous green body, and closes below its midpoint.

Continuation patterns

Help traders to identify a period of rest in the market, when there is market indecision or neutral price movement.

Doji

When a market’s open and close are almost at the same price point, the candlestick resembles a cross or plus sign.

Spinning Top

Has a short body centered between shadows of equal length. The pattern indicates indecision in the market, resulting in no meaningful change in price.

Three-method formation patterns

Used to predict the continuation of a current trend, be it bearish or bullish. The bearish pattern is called the ‘falling three methods’.

Falling Three Methods

Formed of a long red body, followed by three small green bodies, and another red body – the green candles are all contained within the range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse the trend.

Rising Three Methods

Comprised of three short red candles sandwiched within the range of two long green candles. The pattern shows traders that, despite some selling pressure, buyers are retaining control of the market.