Hey, there's a reason why candlestick chart is the most popular indicator of price movement. It's because it tells you how the bulls (the buyers) and the bears (the sellers) tried to enter the battlefield and guess, who survived it?
Hey, there's a reason why candlestick chart is the most popular indicator of price movement. It's because it tells you how the bulls (the buyers) and the bears (the sellers) tried to enter the battlefield and guess, who survived it?
A continuation or reversal of a trend can be predicted by how strong buying or selling force currently is when compared to ongoing trend. Sounds complicated, eh? Now picture it like this, what happens when a horde of bulls rallying through a very steep mountain while there are opportunistic bears lurking in the shadow, looking for a chance to fill their belly?
The bulls eventually starved, and the bears took only a meager sum of effort to plunder their prey.
That's purely an illustration though, when it comes to actual trading activity, the strength of each hordes (or bags of nuts, call it whatever you want), can typically be hinted at by using Candlestick patterns.
It's Candlestick Pattern Time!
There are already several top patterns traders will usually look at to tell where market force will likely end up. The most basic pattern are spinning tops, marubozu and dojis, and that's just the start.
Here we will discuss popular single bar patterns among candlestick patterns and how it tells you a snapshot of a battlefield with all the blood and sweat and toils and... okay, let's just get it to work, shall we.
Single Candlestick Pattern
Single Candlestick Pattern simply means that there is only a single candlestick bar that you need to look for to tell how the ongoing battle between the buyers and the sellers would end up, here's the list:
1) Hammer and Hanging Man
These two pattern are twins except that they show two different battle results depending on past price movement. Both are identified by little body, long lower shadow, and short to no upper shadow.
Hammer is called hammer, well, because its pretty much when all the bears wield hammers to nail down the price even further which is indicated by long lower shadow. However, the bulls comes up fresh while their enemies already exhausted, closing the price near the opening. It's a bullish reversal pattern, and every bull should be on their feet when this pattern is formed during downtrend.
The hanging man, while looking exactly the same, tells completely different result. The bears called out reinforcements, outnumbering the bulls (indicated by longer lower shadows), and that looks way too intimidating to the bulls so they gave up not long after, closing the price near the open. Cheers to the bears, as this pattern is bearish reversal marker, bears be on your mark.
2) Inverted Hammer and Shooting Star
Both looks identical, check, both got little body, check, samey long upper shadow, check, and small to no lower shadow, done.
Longer upper shadows of an inverted hammer pretty much tell us that the bulls were rallying hard without mercy after a downtrend. clearly to book a revenge, leaving the bears to bite the dust so they can only close the price near the open.
Different story with shooting stars, the bulls got way too greedy by shooting all their armaments blindly because they thought it has been a long uptrend victory, it scored no particular bodycounts, and the bears took chances by retaliating, closing the price just close to the low of the day.
Message Of The Day
Simple as it is, it's very tempting to open a position just when one of those pattern took form, however, market is still a volatile price distribution, and you have to make use of other indicators or other patterns to confirm where the upcoming price will likely end up. It also needs to be noted that single candlestick pattern is just a beginning in understanding chart patterns as a whole.
