Technical analysis works on a simple rule – History tends to repeat itself. Technical analysis in itself is a set of rules and regulations developed after watching how the market responded to a specific event or series of candlestick formations.
To be a master in technical analysis one needs to have a strong knowledge of specific candlestick patterns and their importance. One has to look through various aspects like trend direction and strength of trend etc to take a good trade, I have talked more about trend trading in a special blog post.
Be flexible with patterns , there will always be a little difference between the pattern on textbook and the one on your screen.
Single candlestick patterns
These candlestick patterns are formed by a single type of candle or say this is a specific single candlestick you look for to enter into trade. While we look for such candlestick it is important that the candle formed has a good length as length signifies strength. Short candlesticks should be avoided.
Spinning top
A spinning top is a candlestick that tells about the market condition. A trader can use a spinning top to position himself in the market.
- The candle size should be small that is the open and close should be nearer to one another.
- Irrespective of color.
- This candle signifies Indecision in the market.
bullish
marubuzo
A bullish marubuzo signifies a strong bullish movement. The speciality of a Marubuzo is it can form anywhere on the chart irrespective of the trend.
A marubuzo generally has no wicks. You can spot a marubuzo by checking if it’s [OPEN=LOW – CLOSE = HIGH].
Bearish Marubuzo
A bearish marubuzo signifies a strong bullish movement. The specialty of a Marubuzo is it can form anywhere on the chart irrespective of the trend.
A marubuzo generally has no wicks and [OPEM=HIGH and CLOSE=LOW]
Paper Umbrella
Paper Umbrella is a Single candlestick with a long wick with a small upper body.
HAMMER
HANGING MAN
A paper umbrella appearing at the bottom of a downtrend is called “HAMMER”
A Paper Umbrella appearing at the top of an uptrend is known as a “HANGING MAN”.
THE HAMMER
- Small Body with a wick below
- Should form at the end of a downtrend.
- Suggests end of a downtrend
- Look for buying opportunities.
The Hanging Man
- Small Body with a wick below
- Should form at the end of an uptrend.
- Suggests end of an uptrend
- Look for selling opportunities.
Shooting Star
A shooting star is a powerful single candlestick pattern. Popular amongst traders.
- It has a long upper shadow.
- The length of the shadow is twice the length of the upper body.
- The color of the candlestick does not matter.
- The prior trend should be bullish.
- Extremely bearish pattern.
I would like to suggest to you that these patterns are over a day time frame and hence will take a lot of time to be spotted. While using these patterns in a small timeframe it is important that you check for rigid support and resistance zones. Spotting a shooting star at a resistance zone adds confluence to your trade. hence look for such various factors before placing a trade.
Now that we are done with single candlestick patterns let’s look into some multi candle patterns.