Popular Japanese Candlestick Patterns and How to Read Them
Candlestick charts are a charting method traders around the world use. They first appeared in Japan, spread widely, and helped traders read price markets. This article covers some of the candlestick patterns, including:
Candlestick Patterns – Reading Some Candlestick Charts
The area between the open and the close is called the real body. Here’s a breakdown:
– The white real body: A white real body indicates the closing price is higher than the opening price. It isn’t necessarily true that the current candle’s close is better than the previous candle’s close — it’s possible for the current candle’s open to be lower than the previous candle’s close, producing a noticeable price rise that still doesn’t reach above the previous candle’s close.
The result in this case is a candle with a white real body whose current close is lower than the previous candle’s close.
– The black real body: A black real body indicates that the closing price is higher than the opening price. It isn’t necessarily the case that the current black candle’s close is lower than the previous black candle’s close, since the current black candle’s open and close can be higher than the previous black candle’s price, with the previous candle’s close lower than the current black candle’s open.
The result in this case is a candle with a black real body whose close is higher than the previous candle’s close.
Candlestick Patterns | Technical Analysis Basics – Candlestick Models and Indicators
Read also: Candlestick Patterns | The 14 Most Popular Trend-Reversal Patterns
This article covers a few candlestick patterns, including:
1. The Hammer candle: The Hammer is a reversal-type candle with a bullish bias that appears after a downtrend.
– Appearance: The Hammer appears after a downtrend.
– Description: The Hammer’s shape features a long lower shadow, about twice the length of the candle’s real body. Its body can be either black or white and is shorter than the real bodies of the preceding candles. This candle shows a short upper shadow or none at all.
– One of the warning signals for the Hammer after a downtrend comes through a close near the candle’s high. Conversely, a close near the candle’s low is a sign the bullish signal has turned bearish, pointing to a continuation of the downtrend.
2. The Dark Cloud Cover: This is a reversal-type pattern with a bearish bias that appears after an uptrend.
– As a candle, it’s usually relatively longer than the candles before it.
– The Dark Cloud Cover candle points to a continuation of the bullish move, then a black candle follows immediately whose open is higher than the white candle. A bearish gap then forms, which is a sign sellers took control of the price move from start to finish.
3. The White Soldier pattern: This is a reversal-type pattern with a bullish bias that appears after a downtrend.
– The White Soldier pattern consists of two opposing candles: a long black candle appears after the downtrend, followed by a long white candle.
– The warning signal for the White Soldier pattern is confirmed after the downtrend when the close is at the pattern’s high. When the pattern closes at its low, that signals the bullish reading has lost its value and turned bearish, pointing to a greater chance the downtrend continues.
4. The Three Inside Up pattern: This is a reversal-type pattern with a bullish bias that appears after a downtrend.
– This pattern consists of three candles: a relatively long black candle appears after the downtrend, signaling continued bearish movement, followed by a small white candle whose body sits inside the first black candle, then a white candle that records a bullish close beyond the close of the first two candles.
– If the candle closes above the pattern’s high, that may indicate the bullish warning for the Three Inside Up pattern after a downtrend.
– A close at the pattern’s low, however, indicates the bullish signal is no longer significant and has turned bearish, increasing the chances the downtrend continues.
5. The Rising Three Methods pattern: This is a continuation-type pattern with a bullish bias that appears after an uptrend.
– This pattern consists of five candles. It begins with a long white candle expressing the continuation of the bullish move, followed by three small-bodied candles that register repeated bearish closes, and these must stay within the trading range of the first candle; the second and fourth candles are black.
– The third candle must also be either white or black, and the Rising Three Methods pattern ends with a long white candle that closes above the close of the first white candle.
– The bullish signal for the Rising Three Methods pattern comes through a close above the pattern’s high, and this occurs after an uptrend.
Candlestick pattern charts give traders important price information whenever they need it. One of the most common trading techniques today is candle analysis through trading price action, and a trade is usually stronger when it lines up with support and resistance zones, or when it’s confirmed by additional indicators.
This article covers a few candlestick patterns in forex; all candles fall into two categories — candlestick continuation patterns and candlestick reversal patterns.
– Candlestick patterns – Bearish Engulfing pattern: This consists of a first candle with a small white body located inside a second, large black candle, and it’s considered a sign of reversal and decline.
– Candlestick patterns – Bullish Engulfing pattern: This consists of a first candle with a small black body located inside a second, large white candle, and it’s considered a sign of reversal and advance.
– Candlestick patterns – Piercing Line pattern: This consists of two candles, the first black and the second white, which opens at a lower price than the black candle then rises back to close above the midpoint of the black candle’s body, at a level higher than 50%. This is a sign of reversal that shows up in a decline.
– Fourth: the Three Black Crows pattern: This consists of three candles. The first is a long black candle, followed successively by lower closes on the following candles. It appears during an uptrend as a reversal signal toward a decline.
Candlesticks are a type of price chart that shows the open, close, high, and low for each given time period. They were invented by Japanese rice traders centuries ago, then spread among Western traders through a broker named Steve Nison in the 1990s.
Read also:
Price Action Patterns: The Six Best Types of Candlestick Wicks
The Best Types of Japanese Candlesticks
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