Top 10 candlestick patterns

Thursday, September 9, 2010

The top 10 candlestick patterns are the patterns that are found most often and have proven to be the mot reliable.

Top 10 candlestick patternsDark Cloud Cover:  This is a two-day formation which arises when the candlestick formed on the first day has a long white body followed by an opposite colored candlestick, which opened at a new high only to close below is the midpoint of the previous day's trading.  This pattern is considered a bearish reversal signal.

doji's Doji:  When the opening and closing price are essentially the same, the candlestick formed resembles a plus sign, cross, or inverted cross and is referred to as Doji.  It represents indecision on the part of the market, and is interpreted by traders that a turning point is imminent.
engulfing pattern Engulfing Pattern: This is a two-day pattern where the first day's body is smaller than the subsequent candlestick, and they are both of opposite colors.  This pattern is considered bearish when it appears at the end of an uptrend and bullish when it occurs in a down trending market.
evening star Evening Star: Commonly regarded as a bearish reversal pattern, this three-day pattern consists of a long white body, followed by a smaller gap up candlestick, with the third and final day closing below the midpoint of the first day.

hammer Hammer: When trading occurs significantly below the open, but ends well above the low and closes as its high, the candlestick formed has only one tail below its body.  When this formation occurs during a downtrend, it often signals a reversal. An example of trend reversal is seen last month in nifty 50.

                             Nifty  Monement during 10 Aug-5 Sep 2010

hanging man Hanging Man:  Identical to the Hammer, this candlestick pattern occurs during an uptrend, and signals a continuation of the price movement.
harami Harami: This is a simple two day candlestick pattern that has a relatively small body on the second day that is completely surpassed on both sides by the previous day’s candlestick and is always of the opposite color. It usually occurs during a minor correction in a bear or bull market and signals that this temporary uptrend or downtrend is reaching an end, and the underlying trend will continue.  It is especially considered a strong indicator when it appears together with low trading volume.
morning star Morning Star: This formation is considered a three day bullish reversal pattern that consists of a long bodied black first day, a short gap down second day, followed by a third long white bodied candle, which closes above the midpoint of the first day.
piercing line Piercing Line: This is a two-day formation considered to be a bullish reversal.  The first is a continuation of a downtrend with a long black body.  The second day opens at a new low, but closes above the midpoint of the previous day's trading.
Shooting Star Candlestick example image from Shooting Star: The opposite of the Hammer, this is a one-day formation and occurs in an uptrend.  Trading opens higher and trades much higher but prices end near the low.  This pattern is viewed as a bearish reversal.
As you can see the top 10 candlestick patterns are easy to recognize and understand. Try and look at the patterns and understand them as opposed to memorizing them. Meaning try to understand why price is likely to follow the pattern.. 
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