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Top 10 Candlestick Patterns

 

There are many candlestick patterns, but some are very important in online trading. Today we discuss the top 10 candlestick patterns. Nowadays, many people are using these top 10 candlestick patterns for their technical analysis. Candlesticks can indicate price action and market mood towards a certain stock or index. Most technical analysis programs use candlesticks as the default mode of charting. With chart patterns, traders constantly use candle patterns to open and close different trades for their orders. Therefore the best candlestick patterns or the best price action candlestick patterns helps them to predict where the price will go and they buy or sell currency pairs, commodities, stocks etc. with candlestick analysis. The Proper and correctly use of top candlestick patterns can give a perfect signal for trading. The major candlestick patterns can be a major indicator of market activity. There are probably more than 100 individual candlesticks and candlestick patterns. Each of them has a specific meaning and trading ability. Some candle patterns are more useful than others. Let’s take a look at the top ten candlestick patterns.

 

top 10 candlestick patterns

 

A candlestick pattern is a movement of the prices. Every Candle shows current and historical pieces by high, low, opening and closing prices for a specific period. The widest part of the candle from opening to closing price is called the real body of the candle. The shadows of candlestick show the high and low prices of that period. The white or green candlestick shows that the price is rising. And the black or red candlestick shows that the price is decreasing. Here are top 10 Japanese candlestick patterns  (top 5 bullish candlestick patterns and top 5 bearish  candlestick patterns).

 

Top 5 most powerful bullish candlestick patterns

 

1. Hammer

In top 10 candlestick patterns the hammer candle is most powerful bullish candlestick pattern. because the hammer candlestick gives excellent result in forex trading. This candlestick is used by traders to fine the reversal, single in ETFs, commodities and many traders in forex. It is a most powerful bullish candlestick pattern with a long shadow which occurs when the market is much lower than its open price. But later in the end of day closes either above or near its opening price. The candle looks like a hammer, to form perfect hammer the lower shadow should be at least double of its body. Then it will indicate a very powerful bullish signal.

 

 

hammer candlestick

 

 

When you see the perfect hammer after a down trend, it is a big sign of potential reversal of the market. But before placing any order, you should wait for the next candle to open higher than previously closed to confirm the bullish signal.

 

Criteria for a perfect buy signal

1. The lower shadow of the Hammer Candle should be at least two times the length of its real body.
2. The real body of the hammer candle should be at the lower end of the trading range.
3. The color of the body is not important. Although a white or green body should have slightly more important for bullish signal.
4. There should not be an upper shadow or a very small upper shadow.
5. The another candle needs to confirm the Hammer signal with a white or green candle and a gap up with a higher close.
6. The longer the lower shadow of Hammer candlestick, higher the potential of a reversal occurring.
7. A little gap up from the previous day close sets up for a stronger reversal move provided the day after the Hammer signal    trades higher.
8. The candle should be formed in the support zone or oversold zone

 

2. Inverted Hammer

The Inverted Hammer is another important bullish reversal candlestick pattern. It is a powerful candle with a long shadow that occurs upside when the market is much higher than its opening price. But rallies later in the day to close either above or near its opening price. The Inverted hammer looks like an upside down version of the Hammer candlestick pattern. The shadow of upside down of the reverse hammer should be at least double of its real body.

 

 inverted hammer

 

When you see Inverted Hammer after a down trend, it is a big sign of a potential reversal of the market. But before taking any position, you should wait for the next candle to open higher than the close of the previous candle.
 

Criteria for perfect buy signal

1. The upper shadow should be at least two times the length of its real body.
2. The color of the body is not important. Although a white or green body should have slightly more important for bullish signal.
3.There should not be an upper shadow or a very small upper shadow.
4. The another candle needs to confirm the signal, with a white or green candle and a gap up with a higher close.
5. The longer the upper shadow of the Inverted Hammer candlestick pattern, the higher the potential of a reversal occurring.
6. A little gap up formed on the previous close indicate a stronger reversal.
7. The candle should be formed on the support or overbought zone.

 

3. Bullish Engulfing

In top 10 candlestick patterns the Bullish Engulfing pattern is a most powerful reversal candlestick pattern. Bullish engulfing candlestick is bullish in nature and appears at the end of the down trend. Bullish Engulfing pattern occurs when a small bearish candle is engulfed by a large bullish candle. The first candle is a falling black candle and the second candle is a reversal green candle.
 
Bullish Engulfing 

 

Before taking any position, you will have to check the support using horizontal support line, trend line, etc. And use indicators like RSI, Stochastic to get the confirmation of oversold. When you get any confirmation from the support and oversold zone, then you can buy the stocks

 

Criteria for a buy signal

1. The body of the second day candle of bullish engulfing should be completely engulfed the real body of the first day candle.
2. The prices should be at the bottom of the down trend.
3. The body of the second candle should be the opposite in colour (white or red) of the first day candle.
4. The higher the open gap than the previously closed, the higher the probability of a strong bullish signal.
5. The bullish engulfing candlestick pattern should be formed in the support zone or an oversold zone

 

4. Piercing Pattern

The Piercing Pattern is a powerful reversal candlestick pattern appears at the end of a down trend. Piercing pattern is the combination of two candlesticks. The first candle is bearish (red or black) and the second day candle is bullish (green or white). The price almost opens at the high of the day and the price almost closes down around the bottom of the day. The price of the second candle opens below the low of the first day bearish candle. And it must be close above the middle of the previous candle.

 

piercing candlestick pattern

 

 

Criteria for a perfect buy signal

1. The first day candle should be black or red and occurs at the end of the down trend.
3. The white or green candle should be closed more than halfway up of the black or red candle.
4. The longer the black candle and the white candle, the more powerful the reversal.
5. The greater the gap down from the previous days close, the more powerful the reversal.
6. The big volume during these two trading days is a strong confirmation of a bullish signal.
7. Piercing Pattern should be formed on the support level or overbought zone

 

5. Doji

A Doji is occurs when the opening price and closing price are equal. Many traders believe that Doji candles are the best pattern for trading. Doji candlestick patterns are formed in support and resistance area. Doji candlestick patterns provide the information about themselves. And provide information as components in many important patterns. The length of the upper and lower shade can vary, and consequently the candlestick makes a cross, or plus sign. Doji candlestick patterns are neutral patterns. It expresses a sense of uncertainty. There are mainly five types of doji candlestick patterns.

 

1. Neutral Doji
2. Long Lagged Doji
3. Gravestone Doji
4. Dragonfly Doji
5. The 4 Price Doji

 

 

doji candlestick pattern

 

Neutral Doji

A neutral Doji is a small candle and looks like a cross or plus sign. This pattern occurs when the stock opens and closes at the middle of the day.

Long-Legged Doji

In a long-legged Doji the upper and lower shadows are quite long compared to natural Doji. During any time frame the price moves dramatically up and down, but closes at the same level as it opened. This pattern occurs when supply and demand forces are at the equilibrium and it shows uncertainty between buyers and sellers.

Gravestone Doji

A Gravestone Doji is occurs when the opening and closing prices are equal and occur at the low of the day. This pattern forms when the supply and demand forces are in balance.

Dragonfly Doji

Dragonfly Doji are occurs when the opening and closing prices are equal and at the high of the day. The Dragonfly Doji forms, when the supply and demand forces are at equilibrium.

The 4 Price Doji

The 4 Price Doji is a horizontal line without any upper and lower shadow. It looks like a minus sign the candle’s high, low, open and close prices are exactly the same.

 

Criteria for a perfect buy signal

The first thing that you need to know is that a doji candlestick is only significant after an extended move to the upside or an extended move to the downside. To buy any stock the Doji candles must be in a support area or oversold zone. These patterns are used as an entry and exit points. When down trend is at the support level, it can be used as an entry point. Similarly, when Doji forms, in the resistance level, it can be used as an exit point.
 

 

Top 5 most Powerful Bearish Candlestick Patterns

 

1. Shooting Star

In top 10 candlestick patterns the Shooting Star is one of the most powerful bearish candlestick pattern. Because it gives the excellent result on forex trading. It has a small real body with large shadow upside. The shooting star looks exactly like the inverted hammer, but it forms in an uptrend. The upper shadow of the shooting stars should be at least double its real body. Then it indicates a very strong bearish signal.

 

shooting star candlestick pattern

 

When you see the shooting star after an uptrend, it is a great sign of the possible reversal of the market. But before taking any position, you should wait for the next candle to open lower than the close of the previous candle.

 

Criteria for a perfect buy signal

1. The upper shadow of the shooting star should be at least two times the length of its real body.
3. The color of the body is not important. Although a white or green body should have slightly more important for bullish signal.
4. There should not be an upper shadow or a very small upper shadow.
5. The second day candle needs to confirm with a green candle with a gap up with a higher close.
6. The longer the upper shadow of Shooting Star, the higher the potential of a reversal occurring.
7. A little gap up from the previous days close sets up for a stronger reversal move

 

2. Hanging Man

Hanging Man is the top reversal candlestick pattern. This candle is made of only one candle with a long lower shadow and there is a small real body on the upper edge of the candle. A small upper shadow may appear on top of the body, which is bearish in nature. A hanging man candlestick pattern is exactly like a hammer, but it appears at the end of the uptrend.

 

hanging man candlestick pattern

 

Criteria for a perfect sell signa

1. The lower shadow should be at least two times the length of its real body.
2. The real body should be at the upper end of the trading range.
3. The colour of the body is not important, although a black or red body should have slightly more significant.
4. There should not be an upper shadow or a very small upper shadow.
5. The another candle needs to confirm the Hanging Man signal with a black or red candle and a gap down with a lower close.
6. The longer the lower shadow of Hanging Man, the higher the potential of a reversal occurring.
7. A little gap down from the previous days close sets up for a stronger reversal.
8. The candle should be formed in the resistance zone or overbought zone.

 

 

3. Bearish Engulfing Pattern

A Bearish Engulfing pattern is a most powerful bearish candlestick pattern. Bearish engulfing candlestick pattern is bearish in nature and appears at the end of an uptrend. The bearish engulfing pattern has exactly the opposite functions compared to the bullish engulfing
This happens when a small bullish candle is engulfed by a large bearish candle. The first candle is a white or green and the second candle is reversal black or red. When the bearish engulfing pattern is formed at the end of an uptrend, the reversal is more powerful.

 

bearish engulfing pattern

 

Before placing any cell order, you will need to check the resistance or overbought, using the indicator RSI, Stochastics etc. And when you get any confirmation then you can buy the stock using proper stoploss.

 

Criteria for a perfect sell signal

1. The body of the first day candle must be completely engulfed by the body of the second day candle.
2. The prices should be in a definable uptrend.
3. The body of the second day candle should be opposite in colour.
4. The greater the open gaps up from the previous close, the greater the probability of a strong bearish signal
5. The Bearish Engulfing candlestick pattern should be formed in the resistance zone or oversold zone

 

4. Dark Cloud Cover

The Dark cloud cover is a top reversal bearish candlestick pattern. Dark cloud cover appears at the end of an uptrend. The dark cloud cover pattern forms by combining the two candlesticks. The first day candle is bullish (green or white), and the second candle is bearish (red or black). The price opens at almost low of the day and it closes almost at the top for that day. This results in the formation of bullish candle, which is the first candle of the dark cloud cover candlestick pattern. The price of the second candle opens above the high of the previous candle and it must close below the middle of the first day candle.

 

dark cloud cover candlestick pattern

 

 

Criteria for a perfect sell signal

1. The first day candle should be bullish (white or green) and occurs at the end of an uptrend.
3. The second day (black or red) candle should be closed more than halfway down the previous candle.
4. The longer the white candle and the black candle, the more powerful the reversal.
5. The greater the gap up from the previous days close, then there is more powerful the reversal.
6. The big volume during these two trading days is a strong confirmation of a bullish signal.

 

 

5. Doji

A Doji is occurs when the price of opening and closing are equal. Many traders think that this candlestick pattern is one of the best patterns to trade. There are mainly five types of Doji candlestick patterns.

 

doji candlestick patterns

Neutral Doji

A Neutral Doji is a small candlestick pattern and looks like a cross or plus sign. This pattern occurs when the stock open and close in the middle of the day’s high and low.

Long-Legged Doji

A long-legged doji has much longer upper and lower shadows than the natural Doji. During any time frame of the candles, the price dramatically moves up and down but closed at the same level where it opened. This pattern forms when supply and demand are in equilibrium and this shows the indecision between the buyers and the sellers.

Gravestone Doji

A gravestone doji is occurs when the price of opening and closing are equal and occur at the low of the day. This pattern forms when the supply and demand forces are at equilibrium.

Dragonfly Doji

The Dragonfly Doji is occurs when the opening and closing prices are equal and occur at the high of the day. The Dragonfly Doji forms, when the supply and demand forces are at equilibrium.

The 4 Price Doji

The 4 Price Doji is simply a horizontal line without any upper and lower shadow. It looks like minus sign. The high, low, open and close prices of the candle are exactly the same.

 

Criteria for a Sell signal

The first thing that you need to know is that a Doji candlestick is only significant after an extended move to the upside or an extended move to the downside. These patterns are used as entry and exit points. When the Doji forms at the resistance level, it can be used as an entry point. Similarly, when a Doji forms at the support level, it can be used as an exit point.

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