Ask the Orb: What are the popular candlestick patterns used in Technical Analysis

Traders can utilize a variety of candlestick patterns to pinpoint areas of interest on a chart. These are appropriate for day trading, swing trading, and even longer-term position trading. The following are some of the popular candlestick patterns used in Technical Analysis:

Bullish reversal patterns

Hammer

At the bottom of a downtrend, a candlestick with a long lower wick that is at least double the size of the body.

A hammer indicates that, despite intense selling pressure, the bulls brought the price back up close to the open. Although green hammers may signal a more aggressive bull reaction, a hammer can be red or green.

Inverted hammer

It functions similarly to a hammer but with a long wick above the body rather than below. The upper wick, like a hammer, should be at least twice the size of the body.

An inverted hammer appears near the bottom of a downtrend and may indicate a possible upward reversal. The upper wick indicates that price has halted its downward trend, despite the fact that sellers were eventually able to force it down around the open. As a result, the inverted hammer may indicate that buyers will soon take control of the market.

Three white soldiers

The three white soldiers pattern is made up of three consecutive green candlesticks that all open within the body of the preceding candle and close at a level higher than the previous candle’s high.

Ideally, these candlesticks should not have extended lower wicks, indicating that the price is being driven up by constant purchasing pressure. The size of the candles and the length of the wicks can be utilized to predict whether the trend will continue or if it will retrace.

Bullish harami

A bullish harami is characterized by a long red candle followed by a tiny green candle that is totally contained within the previous candle’s body.

The bullish harami pattern can last two or more days and indicates that selling momentum is waning and maybe coming to a stop.

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Bearish reversal patterns

Hanging man

The bearish equivalent of a hammer is the hanging man. It often forms at the end of an uptrend with a modest body and a long lower wick.

The lower wick suggests that there was a significant sell-off, but bulls were able to retake control and drive the market up. Keeping this in mind, a sell-off following a sustained upswing may serve as a warning that the bears may soon lose control of the market.

Shooting star

A shooting star is constructed from a candlestick with a long upper wick, little or no lower wick, and a little body, ideally near the low. The shooting star is similar to the inverted hammer in shape, but it forms near the end of an uptrend.

It means that the market reached a high point, but then sellers gained control and drove the price back down. Some traders prefer to wait for the pattern to be confirmed by the next few candlesticks.

Three black crows

The three black crows are formed by three consecutive red candlesticks that open within the previous candle’s body and shut at a level lower than the previous candle’s low.

Three white soldiers are the bearish equivalent. Ideally, these candlesticks should not have extended upper wicks, indicating that the price is being driven down by constant selling pressure. The size of the candles and the length of the wicks can be used to assess the likelihood of survival.

Bearish harami

The bearish harami is characterized by a long green candle followed by a short red candle with a body that is totally contained within the previous candle’s body.

The bearish harami can last two or more days, emerges at the end of an upswing, and may indicate that buying pressure is waning.

Dark cloud cover

The dark cloud cover pattern is formed by a red candle that opens above the closure of the previous green candle but closes below its middle.

It is frequently accompanied by heavy volume, implying that momentum is shifting from the upside to the downside. Traders may want to wait for a third red candle to confirm the pattern.

Continuation patterns

Rising three methods

The dark cloud cover pattern is formed by a red candle that opens above the closure of the previous green candle but closes below its middle.

It is frequently accompanied by heavy volume, implying that momentum is shifting from the upside to the downside. Traders may want to wait for a third red candle to confirm the pattern.

Falling three methods

Instead, the inverse of rising three ways indicates the continuation of a downturn.

Doji

When the open and close are the same, a Doji is formed (or very close to each other). The price can fluctuate above and below the open, but it always closes at or near the open. As a result, a Doji may signify a point of indecision between purchasing and selling pressures. Nonetheless, the perception of a Doji is very contextual.

A Doji can be described as follows, depending on where the open/close line falls:

Gravestone Doji — Bearish candle with a tall top wick and an open/close towards the low.

Long-legged Doji — Indecisive candle with a lower and upper wick and an open/close at the middle.

Dragonfly Doji — A bullish or bearish candle with a long lower wick and an open/close around the high (depending on the context).

The open and close should be exactly the same, according to the original definition of the Doji. But what if the open and close aren’t the same but are rather quite close? This is known as a spinning top. However, because bitcoin markets can be extremely volatile, an identical Doji is uncommon. As a result, the spinning top and the Doji are frequently used interchangeably.

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