Candlestick Types: A Visual Guide to Trading Patterns
- Rising 3 Method:
The Rising Three Method is a technical analysis pattern used in trading that indicates a continuation of an uptrend. It is formed by a long bullish candlestick, followed by three smaller bearish candles that are all contained within the range of the first bullish candle, and then completed by another long bullish candle.
Here are the steps to identify a Rising Three Method pattern:
- Look for a well-defined uptrend in the price chart.
- Identify a long bullish candlestick that represents the first day of the pattern.
- The next three days should be bearish and have smaller candlesticks that are all contained within the range of the first bullish candlestick.
- The fifth day should be another long bullish candlestick that closes above the high of the first day.
When you see a Rising Three Method pattern, it suggests that the bulls are still in control of the market and that the uptrend is likely to continue. Traders can use this pattern to enter a long position or add to an existing long position.
However, it is important to note that no trading strategy or pattern is foolproof, and traders should always use proper risk management techniques when making trades. It is recommended to use the Rising Three Method pattern in conjunction with other technical analysis tools and indicators to increase the probability of success.
- Gravestone Doji:
A Gravestone Doji is a candlestick pattern in technical analysis that is formed when the opening and closing prices of an asset are equal and occur at the low of the day. This pattern is characterized by a long upper shadow and no lower shadow, giving the candlestick the appearance of a gravestone.
The Gravestone Doji indicates indecision in the market, and it is typically seen as a bearish reversal signal when it appears after an uptrend. This pattern suggests that the bulls were in control earlier in the day, but the bears managed to push the price down to the opening level by the end of the day, creating the long upper shadow.
Traders often use the Gravestone Doji as a signal to take profits on long positions or consider short positions, as it suggests that the uptrend may be losing momentum and a reversal may be imminent. However, traders should always use proper risk management techniques when making trades and should not rely solely on this pattern for their decision-making.
It’s also important to note that the Gravestone Doji pattern should be analyzed in the context of the overall market trend and with the help of other technical indicators and analysis tools to increase the probability of successful trades.
- Falling 3 Method:
The Falling Three Method is a bearish continuation pattern in technical analysis that can indicate the resumption of a downtrend after a brief pause. This pattern is formed by a long bearish candlestick, followed by three smaller bullish candles that are all contained within the range of the first bearish candle, and then completed by another long bearish candle.
Here are the steps to identify a Falling Three Method pattern:
- Look for a well-defined downtrend in the price chart.
- Identify a long bearish candlestick that represents the first day of the pattern.
- The next three days should be bullish and have smaller candlesticks that are all contained within the range of the first bearish candlestick.
- The fifth day should be another long bearish candlestick that closes below the low of the first day.
When you see a Falling Three Method pattern, it suggests that the bears are still in control of the market and that the downtrend is likely to continue. Traders can use this pattern to enter a short position or add to an existing short position.
However, it’s important to note that no trading strategy or pattern is foolproof, and traders should always use proper risk management techniques when making trades. It is recommended to use the Falling Three Method pattern in conjunction with other technical analysis tools and indicators to increase the probability of success.
- Exhaustion & Impulsion:
Exhaustion and impulsion are two important concepts in technical analysis that can help traders better understand market trends and potential reversals.
Exhaustion is a state where the buying or selling pressure in the market has become extreme and may indicate that a reversal is imminent. This often occurs after a sustained trend in one direction and may be marked by a spike in volume or price volatility. Exhaustion can be seen in various technical indicators such as the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) oscillator.
For example, in an uptrend, exhaustion may be indicated by a series of long bullish candles with significant upper wicks or shadows, suggesting that buyers are struggling to push the price higher. This can lead to a potential reversal as buyers become exhausted, and sellers take control.
Impulsion, on the other hand, refers to a strong and sudden movement in price that indicates a significant shift in market sentiment. Impulsion can be seen as a result of fundamental news events, such as earnings reports or geopolitical events, or due to technical factors such as a breakout or a trendline violation.
For example, in an uptrend, impulsion may be seen as a strong bullish candlestick that breaks through a key resistance level, indicating a significant shift in market sentiment in favor of buyers. Impulsion can be seen as a potential opportunity for traders to enter trades in the direction of the impulsive move.
- Bearish Fakeout:
Bearish fakeout is a term used in technical analysis to describe a situation where the price of an asset briefly breaks below a key support level but then quickly reverses and moves back above that level. This can be seen as a false or misleading signal that a bearish trend is starting to develop.
Bearish fakeouts can occur in a variety of technical indicators, such as trendlines, moving averages, or support and resistance levels. They are often caused by market volatility or manipulation, as traders or investors attempt to trigger stop-loss orders or create false breakouts to profit from the ensuing price movement.
Traders who are not careful may be fooled by bearish fakeouts and may enter short positions prematurely, expecting a significant downward trend. However, when the price reverses and moves back above the key support level, these traders may be forced to exit their positions quickly, leading to a rapid rise in prices.
To avoid being caught in a bearish fakeout, traders should use a variety of technical indicators and analysis tools to confirm the validity of the trend before entering any trades. They should also use proper risk management techniques and stop-loss orders to limit their losses in case of a false breakout or reversal.
- Dragonfly Doji:
A Dragonfly Doji is a type of candlestick pattern that can indicate a potential trend reversal in technical analysis. It is formed when the opening and closing prices of an asset are at or near the high of the period, with a long lower shadow and little or no upper shadow. The shape of the candlestick resembles a dragonfly with a long body and thin wings.
The Dragonfly Doji is considered to be a bullish signal when it appears after a downtrend, as it indicates that the buyers have taken control and pushed the price up from the lows. It suggests that the bears tried to push the price down but were unable to maintain their control, and the bulls stepped in to push the price back up.
On the other hand, if the Dragonfly Doji appears after an uptrend, it may indicate a potential trend reversal to the downside. This is because the long lower shadow suggests that the bears were able to push the price down significantly, but the bulls were unable to maintain their control and push the price back up to the highs.
Traders often use the Dragonfly Doji pattern in conjunction with other technical analysis tools and indicators to confirm the validity of the potential trend reversal. For example, they may look for a break of a key resistance level or an increase in trading volume to confirm the bullish trend reversal after a Dragonfly Doji appears.
- Bullish Fakeout:
A bullish fakeout is a term used in technical analysis to describe a situation where the price of an asset briefly breaks above a key resistance level but then quickly reverses and moves back below that level. This can be seen as a false or misleading signal that a bullish trend is starting to develop.
Bullish fakeouts can occur in a variety of technical indicators, such as trendlines, moving averages, or support and resistance levels. They are often caused by market volatility or manipulation, as traders or investors attempt to trigger stop-loss orders or create false breakouts to profit from the ensuing price movement.
Traders who are not careful may be fooled by bullish fakeouts and may enter long positions prematurely, expecting a significant upward trend. However, when the price reverses and moves back below the key resistance level, these traders may be forced to exit their positions quickly, leading to a rapid decline in prices.
To avoid being caught in a bullish fakeout, traders should use a variety of technical indicators and analysis tools to confirm the validity of the trend before entering any trades. They should also use proper risk management techniques and stop-loss orders to limit their losses in case of a false breakout or reversal.
- Spinning Top:
A spinning top is a candlestick pattern that is formed when the opening and closing prices of an asset are close to each other, and there is a small range between the high and low of the period. This results in a candlestick with a small real body and long upper and lower shadows, resembling a spinning top toy.
The spinning top pattern is typically considered a neutral pattern, as it shows indecision in the market. It suggests that the bulls and the bears are in a state of equilibrium and neither side has taken control. However, the pattern can also signal a potential reversal in the market if it appears after a strong uptrend or downtrend.
If a spinning top pattern appears after a strong uptrend, it may indicate that the bulls are losing momentum and the bears are starting to gain control, potentially leading to a reversal in the market. On the other hand, if the pattern appears after a strong downtrend, it may indicate that the bears are losing momentum and the bulls are starting to gain control, potentially leading to a reversal in the market.
Traders often use the spinning top pattern in conjunction with other technical analysis tools and indicators to confirm the validity of a potential trend reversal. For example, they may look for a break of a key support or resistance level or an increase in trading volume to confirm the trend reversal after a spinning top pattern appears.