Candlestick Pattern: The Technical way to pick a Stock
Trading is one of the most exciting professions for decades. Millions of traders across the world trades various assets like shares, currency, metals, commodities & etc through the different stock exchange across the world. Trading isn’t the skills one is born with, but these skills can be learned and practised through proper study. The biggest risk in the stock market is identifying patterns. With the rise of algo and high frequency trading, traders today relies more on technical data and analysis in order to predict the movement of the market. Terms like price information, raw data and candlestick pattern form chart indicator. These terminologies help in providing the details about what will be the movement of the price at a given time. This is where Candlestick patterns come into the picture. They are used to predict the future direction of the price movement as well as flagging up trade signals.
Basically, Candlestick charts are a way of displaying information about an asset’s price movement. It’s a style used to describe high, low, opening and closing price movements of derivative security or currency for a specific period. This is the most preferred tool of analysis for most traders, as it provides all the required information in one glance. It has three basic features:
It represents open to close range.
It indicates intraday high and low.
The direction of market movement- a green body (indicates a price increase),
While a red (or color may change) body shows a price decrease.
There are mainly two types of Candlestick patterns:
- Bullish Engulfing Pattern:
A bullish engulfing pattern occurs in the chart of a security when a large white candlestick fully engulfs the smaller black candlestick from the period before. The patterns appear at the bottom of a downward trend.
There are mainly six types of bullish candlesticks patterns:
- Inverse Hammer
- Bullish engulfing
- Piercing lines
- Morning Star
- Three white soldiers
- Bearish Engulfing Pattern:
The bearish engulfing is a two-candlestick pattern that appears at the top of the trend, thus making it into a bearish pattern. It forms an uptrend and signals a point of resistance.
There are mainly six types of bearish candlestick patterns:
- Hanging Man
- Shooting Star
- Bearish engulfing
- Evening Star
- Three black crows
- Dark Cloud cover
If a candlestick pattern doesn’t indicate a change in market direction, then it is what is known as a continuation pattern. It helps a trader to identify a period of the rest in the market, when there is market indecision or neutral price movement. Here is the list of four continuation market patterns:
- Spinning top
- Falling three method
- Rising three method
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