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.