Strong bullish candlestick patterns : A complete guide
Candlestick patterns have been over the years used by many technical analysts and traders to forecast future price action. They are a rich source of information of market images and hence are widely used in trading to make informed decisions. Bullish candlestick patterns have a particular importance among all existing ones because they can define a reversing or an anticipating situation of a further price increase. Here on this blog post, we will take our time and look at some of the most powerful bullish candlestick formations and how traders can use them profitably.
About Bullish Candlestick Patterns
The bullish candlestick patterns mainly focus on indicating potential points which have a prospect for possible increase in price of a security. These patterns are established when the top trend has turned into a bearish one and there are some indications that it has changed for a bullish one indicating that the buyers are beginning to overpower sellers. Understanding these patterns early makes it easier for the trader to enter long positions and make good profits with minimal risk taking.
Candlestick patterns are useful in technical analysis because they offer an instant and straight forward depiction of the prices. They aggregate price data for any given time open, high, low and close showing the struggle between the bulls and the bears in the market.
Components of Bullish candlestick patterns
Before diving into specific patterns, it’s essential to understand the four key components of a candlestick:
- Open: The price at which the security opens in a given period.
- Close: The price at which the security ends at the close of the period in question.
- High: The maximum price of a product observed in that time span.
- Low: The price which is the lowest within the said duration.
Every candlestick is composed of a body which is a rectangle or a line/arrow and the wicks/light lines which is an upward or downward line/arrow, the body represents the range between the opening and closing prices while the wicks represent the range between the highest and the lowest prices in that given period.
1. The Hammer
Perhaps the most popular of all strong bullish candlestick patterns is the Hammer candlestick. This has a small body and long lower wick, definitely more than twice as long as the body section of the candle. It is formed at the low part of a downward trend and indicates a reversal.
- Formation: A long lower wick means prices were dragged lower sellers actively during the session but by the closing bell buyers actively lifted the price back up. This proximal shift implies that there could be a bullish movement next.
- Interpretation: According to traders, the Hammer’s appearance suggests that sales pressure is beginning to ease and a reversal may take place. If the next candle shows the same reversal by closing on an even higher note, the traders consider the chance of a bullish contract and then they go for a long trade.
2. Bullish Engulfing Pattern
The Bullish Engulfing Pattern is another pattern or signal that if used correctly can provide a good return on investment. This is a two-bar pattern that occurs after a downtrend; when a small black bearish candle is followed by a big white bullish candle that [engulfs for its entire body, the previous candle].
- Formation: The sickle looking bearish candle of the current bar signals that selling pressure has continued, the candle that followed in an upward direction shows that buying pressure has dominated. The second larger bullish candle would engulfin the preceding candle, which shows that the former bulls are back again.
- Interpretation: Other traders would refer to the Bullish Engulfing Pattern as an effective bearish reversal signal. The size of the engulfing candle and the volume of the transaction that occurred behind the move embellishes the signal even further.
3. Morning Star
The Morning Star is an identifiable trading pattern where a security has been frequently felt to reverse bullish candlestick reversal pattern after an extensive downtrend move. It is made up of a large bearish candle, then a small candle that is either bullish or bearish and lastly a large bullish candle.
- Formation: The first candle represents a very bearish or selling pressure. The second and smaller others signify confusion or lack of direction and are usually depicted by Doji or Spinning Top candles. The third candle represents a massive buying pressure exhibited by the bulls, something we see this candle closing well into the body of the first bearish candle.
- Interpretation: In the review of Morning Star pattern, the third bullish candle that appears is regarded as a confirmation of the reversal signal where the bullish candle closes above the midpoint of the first bearish candle. Generally this pattern is used by traders to go long when it is formed close to important support levels.
4. Piercing Pattern
Located at the end of an array of down candles, The Piercing Pattern is a two-candlestick formation that may point to a reversal. The first candle in the pattern is black bearish candle followed by the white bullish candle which opens lower than the previous day and closes more than half the height of the black bearish candle.
- Formation: The bearish candle suggests there is ongoing selling on the market. The next session shows a lower low suggesting that the bearish momentum can pickup from where it left off but buyers come in and take the price up, closing above the middle of the previous session’s high and low.
- Interpretation: This indication explains why analysts believe that buyers are gradually regaining the power and that a decline is on the slow. When the wick of the next candle does the same, traders interpret this as the sign of a reversal to the upside and they strive to find buy points.
5. Three White Soldiers
The Three White Soldiers is a very strong bullish continuation pattern formed by three black-body consecutive candles, each opening and closing above the preceding candle’s high and low. It normally develops following the bearish mode or consolidation and is popular due to it signifying an upward movement.
- Formation: In the pattern each candle opens within the range of the body of the previous candle and it’s close higher than its opening point. The shapes of the candles are primarily long, suggesting powerful purchasing activity, and short wicks, suggesting that no one wants to sell the security.
- Interpretation: The Three White Soldiers pattern is seen as being a sound indication of bullish continuation; this means that the buying pressure is present. Marketers consider such formations suitable to enter long trades provided it appears after a downtrend period.
6. The Dragonfly Doji
The Dragonfly Doji is basically a single candlestick that signals to the trader that the open, high, close prices are almost the same with large lower wicks. This pattern creates a look of uncertainty but is in fact a potentially strong bullish reversal signal when it occurs at the bottom of a declining trend.
- Formation: The long lower wick proves that sellers tried to bring the price down during the session but buyers were able to regain control and bring the price as far back up as it was by the close.
- Interpretation: Because of this reason, traders have a belief that the Dragonfly Doji pattern indicates a possible reversal, especially when the subsequent candle opens higher. Nevertheless, it is important to stand by and wait for affirmation before entering a position simply because of this pattern.
7. The Inverted Hammer
The Inverted Hammer pattern resembles a Hammer but in reverse —as its name suggests. It appears after a downward movement and has a small chart body and a long upper shadow. In view of this, the Inverted Hammer signals that while buyers attempted to advance the price during the session, sellers equalized it.
- Formation: Even though the sellers do not agree with the idea buyers managed to push the price up which is an indication that interest to buy is coming back.
- Interpretation: Cantons described the Inverted Hammer as an indication of a trade reversal but it was noted to be weaker than a standard Hammer pattern. Entry is done when the next candle confirms the direction in a particular move.
Encoding methodology of bullish Candlestick patterns
Some of the bullish candlestick patterns offer some of the strongest signals that traders can get their hands on, but one must remember to read these patterns within the framework of technical analysis. Here are a few key considerations when trading these patterns:
- Context Matters: Bullish candlestick patterns should be searched at right conditions like at falling trend or near a support level. Some of the directions that are formed when trading certain goods can give false signals if the trends of the overall market are not taken into account.
- Volume Confirmation: Volume can act as a confirmation for the candlestick formations. This means that when a stock exhibits a strong bullish pattern coupled with high volume this is actually an indication that the uptrend is real and likely to persist into the future.
- Risk Management: Any system of trading is also accompanied by risk management, and it is the same in this case. Employ use of stop orders to hedge against any adverse market direction that may occur in the market. The stop-losses should be placed just below the latest support or at the ‘low’ of the pattern & they do help in restricting maximum loss.
- Confirmation is Key: One should wait for a confirmation before getting in a trade. A bullish candle pattern does indicate a reversal but is not very accurate; to increase the chances of a successful trade a bullish candle should be followed by an opposite colored candle or there should be confirmation from other indicators like moving averages or RSI.
- Time Frames: It should be noted that all the candlestick patterns can be observed on any time frame and the efficiency is different. Trade patterns drawn on the daily or weekly charts are less likely to fail than those on such a one-minute chart, I can get lots of signals there but they are not so effective.
Also Read : Best indicators in trading
Conclusion
For that reason, several reshging and intense bullish candlestick patterns provide trading with effective techniques for recognizing reversal and other continuation indicators. We have Hammer, Bullish Engulfing, Morning Star, and Three White Soldiers among other patterns that help them realize the change in the price action, helping them entry longs with good timing accordingly. However, none of these candle patterns gives full assurance of success. The trick is in the use of these patterns together with other indicators of technical analysis and in any case – risk management.
Whenever such patterns are understood and recognized, that can go a long way to help the traders in a bid to make better decisions that may lead to increased success in the markets. However, like in all trading the strategy entails a lot of patience, discipline and daily updates before one can master the art of candlestick trading.
FAQ'S
What is a Strong Bullish Candlestick PatternS ?
Authentic bullish candlestick patterns are these with fewer shadows which are used to predict price reversal or an extension with better certainty. Empirical bullish patterns include the Bullish Engulfing, Hammer and Morning star patterns.
What are some common Bullish Candlestick Patterns ?
Some commonly known bullish patterns include:
- Bullish Engulfing
- Hammer
- Morning Star
- Piercing Pattern
- Three White Soldiers
Where can I find a bullish candlestick pattern pdf ?
With a simple web search it is possible to download PDFs and other materials focusing on candlestick patterns at trading websites, technical analysis sites, and other stock markets related resources. Just Google it or check out Investopedia, StockCharts, or even a couple of financial blogs.
What are Bullish Candlestick Reversal Patterns ?
The bullish candlestick reversal patterns indicate a status of a shift from bearish/Down trend to bullish/Up trend . Reversal patterns can be classified as Bullish Engulfing pattern, Morning star pattern, Hammer and Piercing Line.
What is a Bullish Engulfing Candle ?
A Bullish Engulfing is a two candle pattern in which a small black/ red candle is overwhelmed by a large green/ white one. The second candle seems to ‘swallow’ the first one which is a bearish candle – it means that the market is probably reversing up.
