The Shooting Star is a popular pattern widely followed by traders. The simplicity of this single candle pattern helps make it popular. The Shooting Star will have a long wick emerging from the top of a small body.
The color of the body is insignificant to identifying the pattern. When spotted, the shooting star alerts crypto traders to the end of a bullish trend. The open and close of the Doji are nearly identical coupled with a high and low range that is relatively small.
The Doji is not necessarily bullish or bearish. The Doji is considered neutral due to the indecision of the market creating similar opening and closing prices. When a Doji is spotted, it simply means the market is pausing and that a continuation of the trend prior to the pattern forming will ensue.
The first candle is a large-bodied candle that can be either red or green. The second candle sits inside the range of the first candle and is generally the opposite color. This pattern alerts the trader that prices are consolidating the trend from the first candle.
As a result, a breakout is looming nearby. Traders typically look for the breakout to occur in the direction of the old trend. So, if the first candle was red, look for a breakdown below the low of the second candle. If the first candle was green, look for a break higher above the high of the second candle. The Key Reversal involves two candlesticks.
The first stick is normal-sized and can be any color. The second candle drives to a new extreme and then reverses into a large-bodied candle. The second candle is key to indicating whether the pattern is bullish or bearish. If the second candle is green, then it is a bullish Key Reversal, and additional gains are expected.
If the second candle is red, then look for the market to correct lower. If the Key Reversal appears near support or resistance levels, then the signal tends to be stronger. This pattern consists of three candles. The bullish version is the Morning Star where the first candle is a long red body, followed by a small body that pushes to a new low.
Then, the third candle is a large green candle that returns close to the opening price of the first candle. The Evening Star pattern is the opposite and signals a bearish reversal is starting. The distinct shape and length of the three candles make them easy to spot on the charts and a favorite among traders looking for trend reversals.
There are dozens of patterns created by the candlesticks that alert traders to the trends of the forex and crypto markets. The top 7 candlestick formations are popular among traders because they generate strong signals and are easy to spot and interpret on the charts. This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk.
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Many traders use Price Action as entry and exit signal. Since the beginning of chart analysis, traders have found several candlestick patterns that can indicate possible "behaviors" of the market. Candlestick Pattern indicator is an indicator for MetaTrader platform that can detect many of these patterns and show them on screen or to alert traders about them.
It is somewhat similar to Pattern Recognition Master , though they detect slightly different sets of candle patterns. Candlestick Pattern indicator also has a more modern look compared to Pattern Recognition Master. Candlestick patterns are specific candle formations that the trader can use to "read" the market sentiment.
Candlestick patterns can usually include one or more candles, typically up to five or six candles. Traders learned with time how to read common candlestick formations or patterns. They are interpretations of market sentiment and usually predict some kind of reaction. We can divide candlestick patterns into three main categories. Depending on the more probable behavior after they appear on chart:.
Many traders use candlestick patterns to enter and exit trades, but it is important to use them carefully. As you can see from many charts, in fact, candlestick patterns use is more efficient when combined with other indicators and chart analysis. Candlestick patterns can be recognized by the human eyes, however, there is no built-in indicator to detect them in MetaTrader. Candlestick Pattern indicator for MT4 and MT5 can detect many one-, two- and three-candle candlestick patterns.
You can select which patterns to detect and the notification options, the indicator will do the rest. Many traders use price action and candlestick patterns to make trading decisions. There are many popular candlestick patterns.
Since their introduction in the West, candlestick charting techniques have become increasingly popular among technical analysts and they remain in wide use today among Forex traders. Note: While there is much we can see from the candlesticks, there is also much we cannot see. Candlesticks do not depict the sequence of events between the open and close, only the relationship between the open and close.
We can easily see the high and low, but we cannot tell which came first. Candlesticks can offer valuable information on the relative positions of the open, high, low, and close, but the trading activity that forms a particular candlestick can vary. Candlesticks are formed using the open, high, low and close of the bar.
The principle difference between candlestick patterns and bar patterns lies in the emphasis on the open and close. Bar charts do not treat the open and close with any special weighting. If the market closed higher than it opened bullish , the real body is white or unfilled, with the opening price at the bottom of the real body and the closing price at the top.
If the market closed lower than it opened bearish , the real body is black, with the opening price at the top and the closing price at the bottom. The longer the body, the more trend strength, and the shorter the body, more indecision. A long shadow indicates failure for price to maintain its high or low and thus can signal trouble. Traders also prefer to trade in the direction of longer candlestick bodies.
Long bodies indicate strong buying or selling pressure. The longer the body, the stronger the buying or selling pressure. The buyers or sellers were stronger in mass and took control, forming the longer body. In contrast, short bodies suggest little buying or selling pressure and imply more indecision.
Long white candlesticks represent bullish strength. When the close is a long way up from open, the long white candlestick is formed, indicating that bullish buyers have aggressively pushed the price up from open to close. White candlesticks are generally bullish, but you have to consider them in relation to the big picture.
If the market had declined, and is reaching a support level, a long white candlestick bouncing from support can mark a potential turning point. If the market had advanced, and is reaching a resistance level and traders are eager for a break, a long white candlestick breaking the resistance level is a potential message that the level has been clearly broken. Long black candlesticks represent bearish strength.
When the close is a long way down from open, the long black candlestick is formed, indicating that sellers aggressively pushed the price down from open to close. After a long advance to a critical resistance level, a long black candlestick can represent a turning point, where the sellers have launched a counter-attack. Or, if the market had declined to a significant support, a long black candlestick breaking the support level signals that the Bears have breached this level.
Sometimes a candlestick is all body and no shadow. It has no shadows extending from the top or bottom of the candle. The Japanese call them Marubozu, and they are difficult to find in a real market. A white marubozu candle has a long white body and is formed when the open equals the low and the close equals the high. The white marubozu candle indicates that buyers controlled the price of the stock from the open to the close, and is considered very bullish.
A black marubozu candle has a long black body and is formed when the open equals the high and the close equals the low. A black marubozu indicates that sellers controlled the price from the open to close, and is considered very bearish. The pattern indicates indecision between buyers and sellers. The small real body whether white or black shows little movement from open to close, while the shadows indicate that both the bulls and bears were very active during the session.
The session might have opened and closed with little change, but prices moved significantly higher or lower during the same period. Neither buyers or sellers could gain the upper hand and the result is a deadlock. The price distance between the open and high is called the upper shadow. The price distance between the open and the low is called the lower shadow. Candlesticks with long upper shadow and short lower shadow indicate that the buyers initially dominated the session, but then sellers later counterattacked and forced prices down from their highs, with the weak close creating the long upper shadow.
Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers initially dominated the bar session, but then buyers later counterattacked and forced prices higher by the end. Sometimes candlesticks lack a body, or retain only a very small one, and they are called doji. It is seen to lack a body because the opening and closing price are virtually equal. The lengths of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross, or plus sign.
The doji represents indecision in the market. If the market is non-trending, the doji is not as significant, for non-trending or sideways markets are inherently indecisive. If the doji forms on a trend, it is more significant, as it is a signal that the buyers of upward trend or sellers of downward trend are becoming exhausted, weak and losing conviction. The buyers or sellers have been tapped out.
The Doji witnessed in such a context can signal a ripe opportunity to enter early on in a potential trend reversal or trend correction, taking a trade in the opposite direction of the prior trend. A candlestick enacts the battle between Bulls Buyers and Bears sellers during the time frame of the candlestick.
Each side is waging a mini tug-of-war within the candlestick to via for control, and the bodies and shadows of the candlestick give evidence of the struggle for power. The bottom intra-session low of the candlestick represents the Bears in control, and the top inter-session high represents the Bulls in control.
The closer the close is to the high, the closer the Bulls are to winning the engagement, and the closer the close is to the low, the closer the Bears are to winning. The above six formations are the generalized formations of candlesticks, and can help guide the trader along to easily spot the characteristics of Bullish and Bearish candlesticks. Below I will attempt to illustrate some of the more specific candlestick patterns, grouping them into the Bullish and Bearish Formations.
Explanation: We see the black body in a falling market suggesting that the bears are in command, then a small real body appears implying the incapacity of sellers to drive the market lower, and the strong white body of third day proves that bulls have taken over.
Explanation: Black real body while market is falling down may suggest that the bears are in command. Then a Doji appears showing the diminishing capacity of sellers to drive the market lower. All the above candlestick formations should act as confirmations of trend reversal, and you should be aware of the following three steps:. Step 1 — Wait for the above patterns to appear during an established downtrend.
An established downtrend is when the price is below the MA of D1 or H4. Step1 Alternate -Better yet, wait for the above pattern to appear during an established uptrend that is currently experiencing a bearish correction. In other words, the price is below the MA of D1 and H4, and thus in an established downtrend, but recently the price has been charging above the MA of smaller time frames, such as H1 or M Step 2 — Confirm the potential for a trend reversal if the price is nearing key support levels.
These support levels would be defined by horizontal lines across swing highs, or pivot point resistance lines, or even Fibonacci retracement levels. The strength of any bullish candlestick pattern is determined by the nearness to a support level. If the pattern appears in the middle of a trading range, it tends to have little significance. Step 3 — Confirm the reversal with any of the above Bullish Candlestick Patterns.
Keep in mind that it is just as important to see the basic strong signs for Bears i. Exit Signal: Place stop loss x pips above the next lower support level swing low, pivot or fib. Place take profit at next support level swing low, pivot or fib. Alternately, place a stop loss of pips, and a take profit of pips.
Step 1 — Wait for the above patterns to appear during an established uptrend. An established uptrend is when price is above the MA of D1 or H4. Step1 Alternate — Better yet, wait for the above pattern to appear during an established downtrend that is currently experiencing a bullish correction. In other words, the price is below the MA of D1 and H4, and thus in an established downtrend, but recently the price has been charging above the MA of H1 or M Step 2 — Confirm the potential for a trend reversal if price is nearing key resistance levels defined by horizontal lines across swing highs, or pivot point resistance lines, or Fibonacci retracement levels.
This is very important. The strength any candlestick pattern is determined by the nearness to a resistance level.