How to Identify Bullish & Bearish Single Candlestick Patterns?
In the previous session, we’ve introduced the basic patterns of Japanese candlesticks. Today, we will talk about more complex candlestick patterns and learn to identify the market trends they signal.
Candlestick patterns can be classified into bullish and bearish.
Bullish candlestick patterns usually form within or after a downtrend, and signal a reversal of price movement. The common patterns are as below:
- Hammer
The candlestick which lower shadow is 2 or 3 times of the real body and with no upper shadow is called Hammer.
When the market is declining, a hammer signals the bottom is near, buyer is gaining momentum and drive the price up again.
- Inverted Hammer
Inverted hammer has an upper shadow 2 or 3 times of the real body. It forms in or after the downtrend and signals a likely trend reversal or support level.
Bearish candlesticks patterns may form after an uptrend and signal the resistance level. There are also 2 common patterns:
- Hanging Man
Hanging man looks similar to the Hammer, but with small upper shadow. It usually occurs at the top of the rally and indicates that the bull is losing control of the market.
- Shooting Star
Shooting star’s shape is identical to the inverted hammer, however it forms after the uptrend movement. It indicates a potential price top and reversal, and seller will take over.
If you are not ready for live trading, you can practice reading candlestick patterns and identify the signals they give in Bex500’s trading simulator.