Inside Trade | Basic Candlestick Patterns

The main concept of technical analysis is that the movement of the market repeats every now and then.

After being introduced to the types of charts, especially to the Japanese candlestick, a trader should already know that since the market repeat its movement, certain patterns may appear from time to time.

There are 12 major candlestick patterns: Doji, Gravestone and Dragonfly Doji,Long-legged Doji, Bullish Engulfing Pattern, Bearish Engulfing Pattern, Dark Cloud Cover, Piercing Pattern, Hammer and Hanging-man, Morning Star, and Evening Star.

Doji – displayed as a candle without a body, Doji denotes the indecisiveness of the investors. It means that it may mark an impending reversal if in case it appears on a long trend. Traders must preparer for a major trading decision.

Gravestone Doji and Dragonfly Doji – Both patterns are common before a trend reversal. The Dragonfly usually shows a “T” like candle who has a long lower shadow but has no body and upper shadow. Meanwhile, Gravestone is like an upside down “T” which looks like the reverse of the Dragonfly. It has no lower shadow and body but has a long upper shadow which made it look like an erected Japanese gravestone.

Long-legged Doji – this Doji may be compared to the common type but it only has a longer shadow. It indicates that even if the price movement shows a lot of trading activity, the next direction must still be confirmed.

Bullish Engulfing Pattern – this type of pattern is formed at the end of a bear trend. This chart pattern shows a small black candlestick followed by a large white candlestick, “engulfing” the smaller candle. This indicates that the bull had assumed control on the trend and overcoming the the selling pressure.

Bearish Engulfing Pattern – this is an opposite of the Bullish Engulfing Pattern and are formed at the end of a bull trend. It is displayed as a small white candlestick being overwhelmed by a large black candlestick and is showing that the bear had taken over.

Dark Cloud Cover – A pattern which involves a white candlestick being followed black candlestick. It may be a sign of a future bearish trend.

Piercing Pattern - it is a pattern which involves two candlesticks. The candlestick for the first day is black then followed by a white one on the next day. The opening of the white candlestick is way below the range of the candlestick for the previous day. It will then go up and will close above the half of the black candlestick. It signal the end of a small to moderate downtrend and also the time for traders to open a buy position or close their sell position.

Hammer and Hanging-man – the name of the candlestick depends on its color but has similar formation, a small body with a long lower shadow. A hanging man is a bearish candlestick formed at the end of a bull trend. Meanwhile, hammer is found at the end of a downtrend and indicates that although the bullish investors doesn't have the full control, the influence of the bull is getting stronger.

Morning Star – a bullish candlestick pattern consisting of three candle. The first candle is big black candle located on a downtrend. Meanwhile, next to it is a small white candlestick followed by another big white candle. This pattern denotes that the bearish trend will reverse.

Evening Star - the opposite of the Morning Star.