Bullish candlesticks
Lesson 1.
The Hammer Pattern
Pattern Type: Bullish
The Hammer candlestick pattern is a bullish reversal pattern that signifies a potential turnaround in price. It typically forms at the end of a downtrend and signals the possibility of a bullish movement starting. It’s called a “Hammer” due to its shape, which resembles a hammer with a long handle and a small head.
What The Pattern Looks Like
The Hammer pattern is formed of a single candlestick, which has the following characteristics:
Small Real Body: The body of the candle, which is the difference between the opening and closing prices, should be small. This body can be either red (bearish) or green (bullish).
Long Lower Shadow: The most defining feature of a Hammer is its long lower shadow (wick). This shadow should be at least twice the length of the real body.
Little to No Upper Shadow: Ideally, a Hammer should have little to no upper shadow. If there’s a small upper shadow, it can still be considered a Hammer, but the absence of an upper shadow is more ideal.
Position within a Trend: For the pattern to be considered a Hammer, it must form after a downtrend. If the same shape appears after an uptrend, it is called a “Hanging Man” and can be bearish.
Pattern psychology
To fully understand the Hammer candlestick pattern, we need to delve into the market psychology behind it:
Previous Downtrend: Before the Hammer appears, there’s a prevailing downtrend. This means that the bears have been in control, and the sentiment is pessimistic.
Intra-day Decline and Recovery: On the day the Hammer is formed, prices generally open and continue to move down, suggesting that bears are still trying to push the prices lower. However, at some point during the day, a change in sentiment occurs. Buyers step in, pushing the price back up, often closing near or slightly below the opening price.
Bulls Take Control: The long lower shadow represents the distance between the lowest traded prices of that day and the closing price, showing a rejection of the lower prices. This signifies that bulls are beginning to gain control and that bears are retreating.
Potential Reversal Confirmation: While the Hammer itself is a potential reversal sign, it’s essential to look for confirmation on subsequent days. A bullish candle or a gap up the next day can validate the bullish reversal signal of the Hammer.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In conclusion, the Hammer candlestick pattern is an essential tool for traders and investors to identify potential bullish reversals after a downtrend. However, like all candlestick patterns, it’s crucial to use the Hammer in conjunction with other technical analysis tools and not to rely solely on it for making trading decisions.
Lesson 2
The Morning Star Pattern
Pattern Type: Bullish
The Morning Star candlestick pattern is a bullish reversal pattern that signifies a potential change in the direction of the market from bearish to bullish. It typically forms at the end of a downtrend and indicates the dawn of a new upward movement, hence the name “Morning Star,” symbolizing the start of a new day.
What The Pattern Looks Like
The Morning Star pattern consists of three candles:
First Candle: This is a long bearish (red) candle that continues the prevailing downtrend. It has a long body, showing a strong downward movement..
Second Candle: The second candle can be either bullish (green) or bearish (red) and is typically a smaller candle or even a Doji (where the opening and closing prices are nearly the same). This candle will often gap down from the close of the first candle, meaning it opens at a lower price than the closing price of the preceding candle.
Third Candle: This is a long bullish (green) candle that often gaps up from the close of the second candle. It should close at least halfway into the body of the first candle, the more it closes into the first candle’s body, the stronger the reversal signal.
Pattern psychology
Understanding the psychology behind the Morning Star pattern gives more insight into its significance:
Continuation of Bearish Sentiment: The first long red candle reflects the continuation of the recent downtrend. Bears are in control, pushing prices lower.
Market Indecision: The appearance of the second smaller candle or Doji indicates a pause in the downtrend. This shows that the selling pressure is weakening, and there’s uncertainty or indecision in the market. Both bears and bulls are assessing their positions.
Change in Sentiment: The third candle is where the sentiment shifts. The price gaps up on the open, indicating that the bulls have started to step in with force. As the third candle continues to push upward, it confirms that the bulls have taken control, and a potential trend reversal is underway.
Confirmation: While the Morning Star pattern is a strong bullish reversal sign, traders often look for additional confirmation. This could be in the form of another bullish candle following the Morning Star or other technical indicators showing bullish momentum.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In conclusion, the Morning Star candlestick pattern is a powerful tool for traders to identify potential bullish reversals at the end of a downtrend. It provides a visual representation of the shift in market sentiment. However, as with all candlestick patterns, it’s vital to use the Morning Star in conjunction with other technical analysis tools and methods to make informed trading decisions.
Lesson 3
The Three White Soldiers Pattern
Pattern Type: Bullish
The Three White Soldiers pattern is a bullish candlestick formation that indicates a strong reversal in the market from a bearish to a bullish trend. It typically forms after a period of downtrend or price consolidation and suggests a powerful change in sentiment among traders, pointing towards a sustained upward movement.
What The Pattern Looks Like
The Three White Soldiers pattern comprises three distinct candles:
First Candle: This is a relatively long bullish (green) candle. It appears after a downtrend, marking a sharp rise in price from the opening to the close.
Second Candle: The second candle is also a bullish one and should ideally open within the body of the first candle. It’s crucial that this candle closes higher than the first, further continuing the upward trend.
Third Candle: Like its predecessors, the third candle is bullish and opens within the body of the second candle. It should close higher than the second candle, solidifying the reversal trend.
For the pattern to be considered a genuine Three White Soldiers formation, all three candles should have relatively small or nonexistent lower wicks. This indicates that the market consistently closed near its high during the formation of the pattern.
Pattern psychology
The market psychology underpinning the Three White Soldiers pattern is as follows:
End of Bear Dominance: Prior to the formation of the Three White Soldiers, the market is typically in a downtrend or consolidation phase. Bears are dominant, or there’s a lack of clear sentiment.
Strong Bullish Momentum: The appearance of the first long bullish candle signals a sudden and strong buying interest. This may be due to unexpected positive news, favorable market conditions, or other factors that significantly shift the sentiment.
Consistent Buying Pressure: The subsequent two candles reflect continued buying pressure. The fact that each candle consistently closes near its high (with small lower wicks) indicates that bulls are in control throughout the trading day and that bears are failing to push the price down.
Change in Market Sentiment: The culmination of the three candles showcases a robust shift from a bearish or neutral sentiment to a decidedly bullish one. The market, at this point, expects the upward trend to continue.
Potential for Further Gains: While the Three White Soldiers is a strong bullish signal, traders often look for further confirmation to ensure the trend’s strength. A continuation pattern or other bullish indicators following the Three White Soldiers can add to the confidence of an ongoing bullish phase.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In summary, the Three White Soldiers candlestick pattern is an indispensable tool for traders looking to spot significant bullish reversals. The pattern’s strength lies in its visual representation of the transition from bearish or flat market sentiment to a compelling bullish momentum. As always, traders should use this pattern in conjunction with other tools and indicators to enhance the robustness of their trading decisions.
Lesson 4
The Bullish Engulfing Pattern
Pattern Type: Bullish
The Bullish Engulfing pattern is a compelling bullish reversal signal, often indicating a potential bottom or support level in the market, especially when it materializes after a downtrend. As the name suggests, this pattern involves a bullish candle that “engulfs” the preceding bearish candle, symbolizing a forceful shift from selling to buying sentiment.
What The Pattern Looks Like
The Bullish Engulfing is a two-candlestick pattern defined by the following characteristics:
First Candle: A bearish (red/black) candle that is a continuation of the prevailing downtrend.
Second Candle: A larger bullish (green/white) candle that opens lower than the close of the previous bearish candle and closes higher than the open of the preceding bearish candle. In essence, the body of the bullish candle completely engulfs or covers the body of the prior bearish candle.
Shadow Considerations: While the body of the second candle must engulf the body of the first, the shadows (wicks) of the candles are not strictly considered. However, the pattern is deemed stronger if the second candle’s shadows also engulf the first candle’s shadows.
Location: For optimal significance, the Bullish Engulfing pattern should appear after a noticeable downtrend or bearish movement.
Pattern psychology
Breaking down the psychological dynamics of the Bullish Engulfing pattern:
Continuation of Bearish Sentiment: The first candle represents a continuation of the ongoing bearish sentiment, with sellers still having the upper hand in the market.
Shift in Momentum: The second candle begins with a gap down, indicating an initial continuation of the bearish trend. However, as the session unfolds, buying pressure surges dramatically, causing the price to ascend and close above the opening of the previous day. This powerful bullish activity effectively “engulfs” the prior day’s pessimism.
Signal of Potential Reversal: The Bullish Engulfing pattern conveys a significant shift in market sentiment. After days (or periods) of declining prices, the sudden strong bullish response indicates potential exhaustion among sellers and a burgeoning confidence among buyers. This can be interpreted as a sign that the tide is turning in favor of the bulls.
Need for Confirmation: While the Bullish Engulfing pattern is a strong bullish signal on its own, prudent traders often seek additional confirmation. This could be in the form of a subsequent bullish candle, a rise in trading volume during the formation of the engulfing candle, or other corroborating technical indicators.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In summation, the Bullish Engulfing pattern paints a vivid picture of a market tug-of-war, where the bulls make a decisive comeback after a period of bearish dominance. This pattern is an essential tool for traders, serving as a potential harbinger of a bullish reversal. However, as with all candlestick patterns, it is crucial to analyze the Bullish Engulfing in the broader context of the market and with complementary technical tools to make informed trading decisions.
Lesson 5
The Bullish Three Line Strike Pattern
Pattern Type: Bullish
The Bullish Three Line Strike is a compelling bullish continuation pattern. It frequently appears during an uptrend and suggests a potent continuation of the bullish sentiment. This pattern captures a brief pause or pullback in the upward movement, followed by a strong resurgence of the bulls.
What The Pattern Looks Like
The Bullish Three Line Strike consists of a sequence of four candles:
First Three Candles: Three consecutive bullish (green/white) candles, each closing higher than the last, representing a continuation of the prevailing uptrend.
Fourth Candle: Contrary to the trend, the fourth candle is a long bearish (red/black) one. It opens higher than the third candle’s close but then proceeds to “strike” back, engulfing the real bodies of the prior three bullish candles and closing below the first day’s open. It does not, however, need to cover the shadows of the previous candles.
Pattern psychology
Understanding the mindset driving the Bullish Three Line Strike’s formation:
Ongoing Bullish Strength: The first three candles clearly depict the ongoing bullish sentiment, where each day the buyers are pushing the price higher, closing at or near the high of the day.
Brief Interruption: The fourth candle starts with an upward momentum, aligning with the previous trend. However, as the day progresses, sellers temporarily gain control, pushing the price significantly lower and engulfing the previous three days’ gains. This suggests a brief moment of bearish counter-attack.
Bullish Resilience: Despite the strong bearish sentiment on the fourth day, the overall trend remains bullish. The pattern is typically seen as a bullish continuation rather than a reversal since it often appears that the bears, despite their best efforts on the fourth day, cannot reverse the trend.
Importance of Context: The effectiveness of the Bullish Three Line Strike can be amplified when used in conjunction with other technical analysis tools. For example, if the fourth candle bounces off a known support level or is accompanied by a high buying volume, it strengthens the pattern’s bullish continuation signal.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In conclusion, the Bullish Three Line Strike serves as a testament to the bullish market’s resilience. Even as bears attempt a comeback on the fourth day, the broader bullish sentiment remains unshaken. As always, while the pattern provides a valuable glimpse into the ongoing battle between bulls and bears, it’s essential to consider it within the larger market context and alongside other technical indicators for a holistic and informed trading approach.
Lesson 6.
Three Inside Up
Pattern Type: Bullish
The Three Inside Up is a bullish reversal candlestick pattern, signaling a potential turnaround from a preceding downtrend to an uptrend. It is a robust sign of buying interest after a period of selling pressure, pointing to a shift in the market’s sentiment.
What The Pattern Looks Like
The Three Inside Up pattern consists of a trio of candles:
First Candle: A long bearish (red/black) candle, reflecting the continuation of the existing downtrend.
Second Candle: A bullish (green/white) candle that forms within the range of the first candle. Crucially, this second candle closes higher than its open but does not surpass the close of the first candle. Essentially, it’s a bullish harami pattern when combined with the first candle.
Third Candle: Another bullish candle that closes above the high of the first candle, validating the reversal signal.
Pattern psychology
To appreciate the mentality behind the formation of the Three Inside Up:
Initial Pessimism: The appearance of the long bearish candle indicates that sellers still dominate the market, continuing the prevailing downtrend.
Seeds of Doubt: The second bullish candle, forming within the boundaries of the first, implies that the bears might be losing steam. Buyers are starting to step in, though cautiously. The bearish sentiment is being questioned, but a definite shift hasn’t occurred just yet.
Bullish Confirmation: The third bullish candle that eclipses the high of the first candle is a decisive move by the bulls. It confirms that the tide is turning in their favor, and the bears are now on the back foot. This third candle validates the reversal signal, suggesting a forthcoming uptrend.
Pattern Power: The Three Inside Up, at its core, captures the tug-of-war between bears and bulls. While bears initially seem to have control, the subsequent candles reveal a gradual and then definitive shift in power to the bulls.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In summation, the Three Inside Up is a reliable hint at a forthcoming bullish reversal after a prevailing downtrend. Traders often see it as an opportunity to consider long positions. However, as is the case with all technical patterns, it’s essential to use the Three Inside Up in conjunction with other technical indicators and to be aware of the broader market context to make well-informed trading decisions.
Lesson 7
The Dragonfly Doji Pattern
Pattern Type: Primarily Bullish (but context matters)
The Dragonfly Doji is a distinct candlestick pattern that often signals a potential bullish reversal, especially when it appears after a downtrend. The pattern’s name is inspired by its resemblance to a dragonfly, with its long lower shadow representing the insect’s body and the absence of an upper shadow suggesting its wings.
What The Pattern Looks Like
The Dragonfly Doji consists of a single candle with the following characteristics:
Open, Close, and High Prices: All these prices are virtually at the same level, resulting in a very small or nonexistent body. Typically, the open and close are equal or very close to each other.
Lower Shadow: The Dragonfly Doji has a long lower shadow (wick) that extends below the body. This shadow represents a range between the day’s lowest traded price and the opening/closing price.
Upper Shadow: This pattern lacks an upper shadow or has a very minimal one. This means that the highest price of the session is near where the price opened and closed.
Pattern psychology
Understanding the psychological factors that lead to the formation of the Dragonfly Doji:
Initial Bearish Sentiment: The trading day starts with bears in control, pushing the price down. This is reflected in the long lower shadow as the price descends to its lowest point for the day.
Bulls Fight Back: As the day progresses, bulls step in, driving prices upwards. The upward movement is so significant that the closing price ends up being very close to or equal to the opening price.
Sign of Potential Reversal: The Dragonfly Doji’s formation is an indication that even though bears initially had control, the bulls managed to counteract their dominance by the end of the session. This balance between buyers and sellers, especially after a downtrend, suggests a potential reversal or at least a weakening of the bearish momentum.
Context Matters: While the Dragonfly Doji is primarily seen as a bullish signal, its position within a broader trend is crucial. For instance, when it appears after a sustained downtrend, it’s more likely to be a strong bullish reversal sign. Conversely, if it appears during an uptrend, it may indicate that the trend is losing steam, but it’s not as strong a bearish signal as its bullish counterpart after a downtrend.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In conclusion, the Dragonfly Doji is a valuable candlestick pattern that helps traders identify potential shifts in market sentiment, particularly from bearish to bullish. Its clear visual representation showcases the battle between bulls and bears within a single trading session. However, as with all technical patterns, the Dragonfly Doji should be considered alongside other indicators and within the broader market context to derive maximum insight.
Lesson 8
The Piercing Line Pattern
Pattern Type: Bullish
The Piercing Line is a bullish reversal candlestick pattern, frequently appearing after a downtrend, signaling the potential for a change in the current bearish momentum. This pattern exemplifies a transition in the market’s sentiment, where the prevailing bearish mood starts to be countered by a growing bullish force.
What The Pattern Looks Like
The Piercing Line is characterized by a two-candlestick formation:
First Candle: A relatively long bearish (red/black) candle, representing the continuation of the existing downtrend.
Second Candle: The shift starts here. This candle opens below the low of the previous day’s bearish candle, suggesting a potential continuation of the downtrend. However, the day’s trading sees a significant reversal, with the candle closing above the midpoint of the prior bearish candle’s body but below its opening. This candle is bullish (green/white).
Ideal Scenario: For the Piercing Line pattern to be most significant, the second candle should close above the midpoint of the first candle’s body. The closer the second candle’s close is to the first candle’s open, the stronger the potential bullish reversal.
Pattern psychology
Delving into the mindset behind the Piercing Line formation:
Continuation of Bearish Sentiment: The first candle embodies the ongoing bearish trend, signifying that sellers are in control.
Tide Begins to Turn: The second candle starts with pessimism, opening below the prior session’s low, creating the illusion of an extending downtrend. As the session unfolds, buyers start to exert their influence, driving the price up and eventually closing well into the body of the previous bearish candle. This sudden shift showcases a change in sentiment.
Reviving Optimism: The strong recovery during the second day signifies growing optimism among traders. The previously dominant bearish sentiment is now being challenged by a burgeoning bullish force.
Seeking Confirmation: Though the Piercing Line pattern is inherently a strong bullish reversal indicator, prudent traders often await further confirmation. This could be in the form of another bullish candle following the pattern, an increase in trading volume during the second candle, or supporting signals from additional technical analysis tools.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
To wrap up, the Piercing Line candlestick pattern provides a vivid depiction of a possible shift in the market’s mood. From the depths of a bearish trend, there emerges a ray of bullish hope, suggesting potential trend reversals. However, as with all candlestick patterns, it’s essential to interpret the Piercing Line within the broader market context and in tandem with other technical indicators to make the most well-informed trading decisions.
Lesson 9
The Bullish Marubozu Pattern
Pattern Type: Bullish
The Bullish Marubozu is a powerful bullish candlestick pattern, symbolizing strong buying sentiment throughout a trading session. The term “Marubozu” originates from the Japanese word for “bald” or “shaven”, referencing the candlestick’s lack of shadows, which means there’s a strong commitment from buyers from the open to the close.
What The Pattern Looks Like
The Bullish Marubozu has these distinguishing characteristics:
No Shadows: The most defining feature of a Marubozu is the absence (or near absence) of upper and lower shadows. This means the opening price is also the low of the session, and the closing price is the high.
Long Green Body: The body of the candle is green (or white in some charting systems), signifying that the closing price is higher than the opening price.
Size: Typically, the Marubozu is relatively long compared to preceding candles, suggesting a strong buying sentiment throughout the entire session.
Pattern psychology
Understanding the mindset behind the formation of the Bullish Marubozu:
Unwavering Bullish Sentiment: The candle starts at its lowest point and ends at its highest, which means there was consistent buying pressure throughout the session. There was no point in the session when the sellers could push the price down from the opening, nor could they prevent the buyers from pushing the price up to the close.
Absence of Doubt: The lack of shadows suggests a session dominated by one-sided sentiment. In the case of the Bullish Marubozu, it’s clear the buyers had full control from start to finish.
Possible Continuation or Reversal: If this pattern appears during an uptrend, it reinforces the bullish sentiment and suggests a continuation. If it emerges after a downtrend or at a known support level, it can signal a strong bullish reversal, indicating that the bears have lost control and a potential upward shift in the trend is in the offing.
Need for Caution: Despite the strong bullish sentiment displayed by the Bullish Marubozu, prudent traders should always be cautious. If the Marubozu forms after an extended uptrend, it might also signify the last push before a reversal or a period of consolidation. Context and accompanying technical indicators should always be considered.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In conclusion, the Bullish Marubozu serves as a clarion call of bullish dominance in a particular trading session. Its clear, shadowless formation speaks of unwavering confidence among buyers, making it a significant pattern to recognize for traders. However, as with all technical patterns, the Bullish Marubozu should be considered alongside other indicators and the broader market context for the most accurate reading of potential future price movements.
Lesson 10
Bullish Abandoned Baby
Pattern Type: Bullish
The Bullish Abandoned Baby is a rare but reliable candlestick reversal pattern that typically appears at the end of a downtrend. As its name suggests, it conveys a strong shift in investor sentiment from bearish to bullish. This pattern is similar in nature to the Morning Doji Star but is distinct due to the presence of gaps on either side of the middle candle.
What The Pattern Looks Like
The Bullish Abandoned Baby consists of three candles:
A long bearish (red or black) candle, reflecting a continuation of the prevailing downtrend.
A small Doji candle that gaps below the close of the previous bearish candle. The Doji represents indecision in the market and does not overlap with the previous day’s trading range.
A long bullish (green or white) candle that gaps above the close of the Doji, indicating a strong reversal and potential start of a new uptrend.
In essence, the pattern visually portrays a scenario where the “baby” (Doji) is left abandoned, distanced from the previous and subsequent trading sessions.
Pattern psychology
The psychology behind the Bullish Abandoned Baby pattern reflects a drastic shift in market sentiment:
First Candle: The prevailing downtrend is still in control, with bears pushing the price lower, resulting in a long bearish candle.
Second Candle (Doji): After the market opens with a gap down from the previous session’s close, the bears start to lose momentum. Throughout the session, neither the bulls nor the bears gain an upper hand, resulting in a Doji. This suggests uncertainty and indecision in the market, signaling that the bears might be losing their grip.
Third Candle: The bullish candle that follows the Doji opens with a gap up, indicating a strong resurgence of the bulls. This shift signifies that not only have the bears lost control, but the bulls are now dominating, pushing the prices higher. The result is a strong bullish candle, confirming the reversal.
What The Pattern Looks Like
An Example Of The Pattern In A Graph
In summary, the Bullish Abandoned Baby pattern encapsulates a narrative of bearish exhaustion, market indecision, followed by bullish resurgence. Recognizing this pattern can provide traders an early indication of a potential bullish reversal after a sustained downtrend.
Lesson 11
Rising Window (Gap)
Pattern Type: Bullish
The Rising Window, commonly known in Western technical analysis as the “Gap Up,” is a bullish candlestick pattern indicating a potential continuation of the current uptrend. This pattern is characterized by a gap between the high of one session and the low of the following session, with no overlap in prices. The presence of this window or gap provides a strong indication of bullish sentiment in the market.
What The Pattern Looks Like
The Rising Window pattern consists of:
A candle, either bullish or bearish, followed by a gap where the next candle opens.
A subsequent candle that opens above the high of the previous session, leaving a clear gap or “window” between the two sessions.
It’s essential that this window remains unfilled, meaning no trading activity should overlap into the gap area for the pattern to remain valid. If future candles close the gap, it can negate the bullish implication of the Rising Window.
Pattern psychology
The psychology behind the Rising Window (Gap Up) pattern unfolds as:
Before the Gap: Leading up to the gap, the prevailing sentiment might be mixed, or there could already be a bullish undertone depending on the previous trend.
Formation of the Gap: The appearance of the gap signifies a sudden and strong surge in demand for the asset, such that the opening price is markedly higher than the previous session’s high. This could be due to positive news, strong earnings reports, or any other influential factors.
After the Gap: If prices continue to rise or stay above the gap without filling it, it’s an affirmation of strong bullish sentiment. However, if prices start to move back and fill the gap, it may indicate weakening bullish momentum.
What The Pattern Looks Like
An Example Of The Pa
ttern In A Graph
The Rising Window serves as a visual representation of a period where supply and demand dynamics shifted heavily in favor of demand, causing a jump in price. The continued maintenance of this gap showcases sustained bullish sentiment, as sellers aren’t pushing prices back down to fill the gap, and buyers are willing to purchase at these elevated levels.