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16 candlestick patterns ever y

trader should know

Candlestick patterns are used to predict the future

direction of price movement Discover . 16 of the most

common candlestick patterns and how y ou can use them to

identif y 몭
trading oppo tunities .

Candlestick Technical anal ysis Doji Pressure 몭

Inve ted hammer

몭
Suppo t and resistance

Writer ,
 Writer ,

What is a candlestick ?
A candlestick is a wa y of displa ying information about an asset s ’
.
price movement Candlestick cha ts are one of the most popular 몭
components of technical anal y , sis enabling traders to interpret

price information quickl y and from just a few price bars .

몭
This a ticle focuses on a dail y cha t 몭 , wherein each candlestick

details a single da y’ .
s trading It has three basic features :

The bod y, which represents the open to close range - -

The wick , ,
or shadow that indicates the intra da - y high and low

The colour , which reveals the direction of market movement –

a green (or white ) bod y ,
indicates a price increase while a red

(or black ) bod y shows a price decrease

,
Over time individual candlesticks form patterns that traders can

몭
use to recognise major suppo t and resistance levels There are a .
great man y candlestick patterns that indicate an oppo tunit 몭 y
within a market – some provide insight into the balance between

buy ing and selling pressures while others identif , y continuation

patterns or market indecision .

 E x plore the markets with our free course

Discover the range of markets and learn how the y work - with

IG Academ y'
s online course .

Before y 몭
ou sta t trading , ’ 몭
it s impo tant to familiarise y ourself with

the basics of candlestick patterns and how the y can inform your

decisions .

Practise reading candlestick patterns

The best wa y to learn to read candlestick patterns is to practise

x
entering and e iting trades from the signals the y .
give You can

develop y -
our skills in a risk free environment b y opening an IG

demo account , or if y
ou feel confident enough to sta t trading 몭 ,
you can open a live account toda y.

When using an y candlestick pattern , 몭

it is impo tant to remember

that although the y are great for quickl y predicting trends the , y
should be used alongside other forms of technical anal y
sis to

.
confirm the overall trend You can learn more about candlesticks

and technical anal y sis with IG Academ y’ s online courses .

Si x bullish candlestick patterns

Bullish patterns ma y form after a market downtrend , and signal a

reversal of price movement The . y are an indicator for traders to

consider opening a long position to profit from an y upward

trajector y.
Hammer

The hammer candlestick pattern is formed of a sho t bod 몭 y with a

long lower wick , and is found at the bottom of a downward trend .

A hammer shows that although there were selling pressures

during the da y, ultimatel y a strong bu ying pressure drove the

.
price back up The colour of the bod ycan var y, but green

hammers indicate a stronger bull market than red hammers .

Inverse hammer

A similarl y 몭
bullish pattern is the inve ted hammer The onl . y
difference being that the upper wick is long , while the lower wick

몭 .
is sho t
It indicates a bu y ,
ing pressure followed b y a selling pressure that

was not strong enough to drive the market price down The .
inverse hammer suggests that bu yers will soon have control of the

market .

Bullish engulfing

The bullish engulfing pattern is formed of two candlesticks The .

몭
first candle is a sho t red bod y that is completel y engulfed b y a

larger green candle .

Though the second da y opens lower than the first , the bullish

,
market pushes the price up culminating in an obvious win for

buy .ers
Piercing line

The piercing line is also a two stick pattern - , made up of a long red

,
candle followed b y a long green candle .

There is usuall y a significant gap down between the first

’ ,
candlestick s closing price and the green candlestick s opening It ’ .
indicates a strong bu y ,
ing pressure as the price is pushed up to or

-
above the mid price of the previous da y.

Morning star

The morning star candlestick pattern is considered a sign of hope

. -
in a bleak market downtrend It is a three stick pattern one sho t : 몭 -
bodied candle between a long red and a long green Traditionall . y,
‘ ’
the star will have no overlap with the longer bodies as the ,
market gaps both on open and close .

It signals that the selling pressure of the first da y is subsiding , and

a bull market is on the hori on z .

Three white soldiers

The three white soldiers pattern occurs over three da s It y.

consists of consecutive long green ( or white ) candles with small

,
wicks which open and close progressivel y higher than the

previous da y.

It is a ver y strong bullish signal that occurs after a downtrend , and

shows a stead y advance of buy ing pressure .

Six bearish candlestick patterns

Bearish candlestick patterns usuall y form after an uptrend , and

signal a point of resistance Heav . y pessimism about the market

price often causes traders to close their long positions and open ,
몭
a sho t position to take advantage of the falling price .
Hanging man

The hanging man is the bearish equivalent of a hammer ; it has the

same shape but forms at the end of an uptrend .

-
It indicates that there was a significant sell off during the da y, but

that bu y .
ers were able to push the price up again The large sell off -
is often seen as an indication that the bulls are losing control of

the market .

Shooting star

몭
The shooting star is the same shape as the inve ted hammer but ,
:
is formed in an uptrend it has a small lower bod y, and a long

upper wick .

Usually, the market will gap slightl y higher on opening and rall yto

an intra da- y high before closing at a price just above the open –
like a star falling to the ground .
Bearish engulfing

A bearish engulfing pattern occurs at the end of an uptrend The .

first candle has a small green bod y that is engulfed b y a

subsequent long red candle .

It signifies a peak or slowdown of price movement , and is a sign of

.
an impending market downturn The lower the second candle

,
goes the more significant the trend is likel y to be .

Evening star

-
The evening star is a three candlestick pattern that is the

.
equivalent of the bullish morning star It is formed of a sho t 몭
candle sandwiched between a long green candle and a large red

candlestick .

It indicates the reversal of an uptrend , 몭

and is pa ticularl y strong

when the third candlestick erases the gains of the first candle .
Three black crows

The three black crows candlestick pattern comprises of three

몭 -x
consecutive long red candles with sho t or non e istent wicks .
Each session opens at a similar price to the previous da y, but

selling pressures push the price lower and lower with each close .

몭
Traders interpret this pattern as the sta t of a bearish downtrend ,
몭
as the sellers have ove taken the bu yers during three successive

trading da s y.

Dark cloud cover

The dark cloud cover candlestick pattern indicates a bearish

reversal – a black cloud over the previous da y’ .

s optimism It

:
comprises two candlesticks a red candlestick which opens above
the previous green bod y, and closes below its midpoint .

It signals that the bears have taken over the session , pushing the

price sharpl y .
lower If the wicks of the candles are sho t it 몭
suggests that the downtrend was e tremel x y decisive .

Four continuation candlestick patterns

’
If a candlestick pattern doesn t indicate a change in market

direction , it is what is known as a continuation pattern These can .

help traders to identif y a period of rest in the market , when there

is market indecision or neutral price movement .

Doji

’
When a market s open and close are almost at the same price

point , the candlestick resembles a cross or plus sign – traders

몭
should look out for a sho t to non e istent bod -x y, with wicks of

vary ing length .

’ y
This doji s pattern conve s a struggle between bu yers and sellers

.
that results in no net gain for either side Alone a doji is neutral
signal, but it can be found in reversal patterns such as the bullish

morning star and bearish evening star .

Spinning top

The spinning top candlestick pattern has a sho t bod 몭 y centred

.
between wicks of equal length The pattern indicates indecision in

the market , resulting in no meaningful change in price the bulls :

,
sent the price higher while the bears pushed it low again .
Spinning tops are often interpreted as a period of consolidation ,
or rest , following a significant uptrend or downtrend .

On its own the spinning top is a relativel y benign signal , y

but the

can be interpreted as a sign of things to come as it signifies that

the current market pressure is losing control .

Falling three methods

-
Three method formation patterns are used to predict the

continuation of a current trend , be it bearish or bullish .

 ‘
The bearish pattern is called the falling three methods ’. It is

formed of a long red bod y, followed b y three small green bodies ,

and another red bod y– the green candles are all contained within

.
the range of the bearish bodies It shows traders that the bulls do

not have enough strength to reverse the trend .

Rising three methods

The opposite is true for the bullish pattern , ‘

called the rising three

’ .
methods candlestick pattern It comprises of three sho t reds 몭
sandwiched within the range of two long greens The pattern .
shows traders that , despite some selling pressure bu , y
ers are

retaining control of the market .

 This information has been prepared b y ,
IG a trading name of IG Markets Limited In addition to .
,
the disclaimer below the material on this page does not contain a record of our trading prices ,
, ,
or an offer of or solicitation for a transaction in an y .
financial instrument IG accepts no

responsibilit y for an y use that ma y be made of these comments and for an y consequences

.
that result No representation or warrant y is given as to the accurac y or completeness of this

.
information Consequentl y y an person acting on it does so entirel y at their own risk An . y
research provided does not have regard to the specific investment objectives financial ,
situation and needs of an y specific person who ma y .
receive it It has not been prepared in

accordance with legal requirements designed to promote the independence of investment

research and as such is considered to be a marketing communication Although we are not .

specificall y constrained from dealing ahead of our recommendations we do not seek to take

advantage of them before the y are provided to our clients .

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10 몭
cha t patterns ever y trader needs to know

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