Six bullish candlestick patterns
Bullish patterns may form after a market downtrend, and signal a reversal of price movement. They are an indicator for traders to consider opening a long position to profit from any upward trajectory.
Hammer
The hammer candlestick pattern is formed of a short body with a long lowershadow, and is found at the bottom of a downward trend. The lower shadow must be at least twice the length of the body.
A hammer shows that although there were selling pressures during the day, ultimately a strong buying pressure drove the price back up. The colour of the body can vary, but green hammers indicate a stronger bullish signal than red hammers.
The next day must be bullish to confirm this reversal pattern.
Inverted hammer
A less bullish pattern is the inverted hammer. The only difference being that the 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. The inverse hammer suggests that buyers might soon have control of the market but is not a very reliable pattern.
Bullish engulfing
The bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that is completely engulfed by a larger green candle.
Though the second day opens lower than the first, the bullish market pushes the price up, culminating in an obvious win for buyers.
Piercing line
The piercing line is also a two-candlestick pattern, made up of a long red candle, followed by a long green candle.
There is usually a significant gap down between the first candlestickâs closing price, and the green candlestickâs opening. It indicates a strong buying pressure, as the price is pushed up to or above the mid-price of the previous day.
Confirmation is seen by a further bullish candle.
Morning star
The morning star candlestick pattern is considered a sign of hope in a bleak market downtrend. It is a three-candlestick pattern: one short-bodied candle between a long red and a long green candle. Traditionally, the âstarâ will have no overlap with the longer bodies, as the market gaps both on open and close.
It signals that the selling pressure of the first day is subsiding, and a bullish reversal is on the horizon.
Three white soldiers
The three white soldiers pattern occurs over three days. It consists of consecutive long green (or white) candles with small shadows, which open and close progressively higher than the previous day.
It is a very strong bullish signal that occurs after a downtrend, and shows a steady advance amid buying pressure.
Six bearish candlestick patterns
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 hanging man is the bearish equivalent of a hammer; it has the same shape but forms at the end of an uptrend. Like the hammer, the lower shadow must be at least twice the length of the body.
It indicates that there was a significant sell-off during the day, but that buyers were able to push the price up again. The large sell-off is often seen as an indication that the bulls are losing control of the market.
Shooting star
The shooting star is 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.
Usually, the market will gap slightly higher on opening and rally to an intra-day high before closing at a price just above the open â like a star falling to the ground.
Bearish engulfing
A bearish engulfing pattern occurs at the end of an uptrend. The first candle has a small green body that is engulfed by a subsequent long red candle.
signifies a peak or slowdown of price movement, and is a sign of an impending market downturn. The lower the second candle goes, the more significant the trend reversal is likely to be.
Evening star
The evening star is 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.
Piercing line
It indicates the reversal of an uptrend, and is particularly strong when the third candlestick erases the gains of the first candle.
Three black crows
The three black crows candlestick pattern 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.
Traders interpret this pattern as the start of a bearish downtrend, as the sellers have overtaken the buyers during three successive trading days.
Dark cloud cover
The dark cloud cover candlestick pattern indicates a bearish reversal â a black cloud over the previous dayâs optimism. It comprises two candlesticks: a red candlestick which opens above the previous green body, and closes below its midpoint.
Morning star
It signals that the bears have taken over the session, pushing the price sharply lower. If the shadows of the candles are short it suggests that the downtrend was extremely decisive.
