🔹Candlestick Patterns

What are Candlestick Patterns?

• Candlesticks are created by up and down movements in the price.

• A group of candlesticks can form a candlestick pattern.

• Candlestick patterns show price action in a specific time period to indicate up or down bias.

How are they useful?

• When applied in the context of the market structure can tell you what price is going to do next

• It can be used as the last entry condition once the context is analysed

• Helps to know the bias within a certain time period

Types of Candlestick Patterns

Candlesticks patterns are broadly categorized into:

Bullish Reversal Patterns

Bullish Continuation Patterns

Bearish Reversal Patterns

Bearish Continuation Patterns

Bullish Engulfing - Bullish Reversal Pattern

• two opposite trend candlesticks where the second candle engulfs the opening and close of the prior candle.

• Indicates the potential beginning of a bullish price move when it appears in the midst of a downtrend.

• The first candle’s real body is significant as a smaller real body implies greater indecision and uncertainty.

Bullish 3-line Strike - Bullish Reversal Pattern

• A four-candle trend continuation pattern.

• 1st candle is a strong bull candle closing near its high.

• 2nd candle is another bull candle closing higher than the 1st candle close.

• 3rd candle should again be a bull candle closing higher than the 2nd candle close.

Rising Three Method - Bullish Continuation Pattern

• Ideally, a five-candle trend continuation pattern.

• 1st candle is a strong bull candle with a large body and closing near its high.

• The next three candles after that should be small bodies bearing candles that should not break below the low of the 1st candle.

• The 5th candle should again be a large bull candle breaking above the high of the 1st bull candle.

Bearish Engulfing - Bearish Reversal Pattern

• Consists of two candlesticks with opposite trends where the second candle engulfs the Open and Close of the prior candle.

• Indicates the onset of a bearish price move when it appears in the midst of an uptrend.

• The first candle’s real body is significant as a smaller real body implies greater indecision and uncertainty.

Bearish 3-line Strike - Bearish Reversal Pattern

• A four-candle trend continuation pattern.

• 1st candle is a strong bear candle closing near its low.

• 2nd candle is another bear candle closing lower than the 1st candle close.

• 3rd candle should again be a bear candle closing lower than the 2nd candle closing.

Falling Three Method - Bearish Continuation Pattern

• A five-candle trend continuation pattern.

• 1st candle is a strong bear candle with a large body and closing near its low.

• The next three candles after that should be small bodied bull candles that should not break above the high of the 1st candle.

• The 5th candle should again be a large bear candle breaking above the low of the 1st bear candle.

Indecision Patterns

• Single candlestick patterns

• Indicates weakness and indecision

• It has no real body or very little real body

• 4th candle is a bear candle opening below the low of the 3rd candle and closing above the 1st candle’s opening.

• 4th candle is a bear candle opening above the high of the 3rd candle and closing below the 1st candle’s opening.

• The opening and closing prices for the period were at the exact same level or very close together.

Candlestick patterns should be used with context. Context refers to knowledge of wave patterns and trends (uptrend or downtrend).

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