Bullish Candlestick Patterns
There are many candlestick patterns out there. In fact there are approximately 40 reversal and continuation patterns. Here are the ones that are really useful.
Using just a few of these candlestick patterns will provide you with more than enough trade setups. However, it is also good to learn about the others. This is because the other patterns also give us very effective entry points. Again I highly recommend Steve Nison's books and DVD's.
The lesson here is, the more you learn the better. Nevertheless, if you are just starting, just focus on a few patterns. Master them and they will richly reward you.
This is one of my favourite patterns. What happens here is the stock opened at the top of the trading session. Throughout the day, the stock went all the way down. However, the stock refused to stay down and it closed at the top of the session.
You will often see this pattern at the end of a downtrend. Everybody is selling the stock. There is fear and panic. Many stop losses are also hit, thus producing a sharp drop in the price. Obviously, the fear and panic is over exagerrated and thus the stock shoots back up to close at the top of the session.
When you see this pattern on a downtrend, it signifies that the downtrend may slow down. A possible reversal may happen.
I always like to see a hammer. When combined with other chart patterns like double bottom and triple bottom, it can be a very powerful reversal sign.
A doji shows that market participants are undecided. The stock opened and closed at or near the same price. Throughout the day, bulls try to push the price up. The bears also tried to push the price down. Nobody won on that day.
When you see a doji, it tells you that the current trend may be weakening. The doji is often seen before a reversal in a stock. So, take note of it.
A bullish engulfing pattern consists of two candlestick bars. The second bar completely engulfes the previous bar. The first bar is a down bar. The next day, the stock opens lower. Everybody thinks that the stock is going to go down further.
However, the stock rises and close way above the high of the previous day. The bulls have taken control and eliminated the bears. Thus, the stock may be ready to go up again.
I have put another copy of the candlestick patterns here so you do not need to scroll up and down to look at them
According to Steve Nison, Harami means 'pregnant' in Japanese. This may look like the bullish engulfing pattern. But, what happens here is that the previous day's candle completely engulfes the subsequent day's candle.
On the previous day, you see a nasty wide range down bar. Everybody is suffering and thinks that the stock may go down again tommorow.
On the next day, the stock opened above the previous day's close.We call that a gap up. Instead of going down, the stock went up. So, everybody is surprised. They start to think 'well, things may not look that bad after all'.
When you see that happening, it signals that the bulls may be starting to take control. There is a possibility that the stock might move up from there.
A bullish piercing consists of two candle bars. The first bar is a down bar. The stock closed near the bottom of the day. The next day, the stock opens below the previous day's closing price. We call this a gap down.
Things can look pretty scary. However, the stock starts to rise again and closes near the middle of the previous day's bar. Things may not look that bad after all.
A bullish piercing shows a potential reversal. This pattern can occur at the end of a declining market.
Can you see how candlestick patterns show you what happened in a stock? It tells you the emotions and mindset of market participants. It also shows you whether there is fear or panic. When you know what others are thinking, you are better positioned to take advantage of any situation.
You now know how to spot possible bullish entry points. The next article on bearish candlestick patterns will show you how to spot possible exit points.
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