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Candlestick Reversal Patterns I

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    Candlestick Reversal Patterns I

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    Candlestick patterns can consist of just one candlestick or couple of them, usually not more than six.

    Hammer and Hanging Man patterns
    This is a one candlestick pattern with small body and long lower shadow (and no upper shadow). The hammer occurs in a downtrend and hanging man in the uptrend. The smaller the body is and the longer the long lower shadow is, the better is the actual signal. Also, hanging man with a black body is more bearish and hammer with white body more bullish.

    Engulfing pattern
    It consists of two bodies ( two candlesticks ) of which one is filled and one is empty. The second day’s body should be engulfing the first day’s body like you can see on the picture. Shadows are not important. This pattern predicts end to the previous trend. The first day’s color should reflect the trend (filled for downtrend and empty for uptrend).Note that in order to make any conclusions from this pattern, there must be a previous trend. The bigger the second day’s engulfing is, the more likely signal it is.

    It is the opposite pattern to Engulfing. See the pic below.

    Harami Cross
    Harami Cross consists of a big body followed by a small body and the second body is within the previous long day body. Whether the long day is filled or empty, this should depend on the previous trend. Also note that it is considered a reversal pattern only if there haven’t been too Doji’s (short days) in the previous data.

    Piercing Line
    Piercing line is a bullish reversal pattern which occurs in a downtrending market. The first day is filled and the second empty. The second day should open below the first day’s low and closes above the midpoint of previous day’s body. This is very important to pay attention to as otherwise it couldn’t be classified as piercing line. Both days in piecring patterns should be long days like you can see on the image.

    Dark Cloud Cover
    This is a bearish reversal pattern and is exactly the opposite to the Piercing Line.

    Doji Star
    Doji star warns us about a possible trend change. On chart it looks like a first long body followed by a really short body (Doji). Note that there’s a gap between the two real bodies as you can see in the illustration. The second day should gap in the direction of the previous trend.

    Morning Star
    This is a bullish reversal pattern that consists of long filled body which is followed by small body (and a gap between them), followed by a long empty body. It’s good if there’s a gap both after and before the middle body. Like with most reversal candlestick patterns, the first body should be according to the previous trend. Note that in case of the second body it is not important whether it is filled or empty.

    Evening Star
    Evening Star looks pretty much the opposite to the Morning Star.

    Morning and Evening Doji Stars
    These patterns are pretty similar to Morning Star and Evening Star, only with the difference that the middle body is a Doji. See the image below.

    Coming up next: Candlestick Reversal Patterns II

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