CHEATSHEET FOR CANDLESTICK PATTERNS

Cheat Sheet for Candlestick Patterns to DayTrade or Swing Trade Stocks

The markets are vicious morphing entities that feed off trader emotions and losses for a financial trader. However, with the correct weapons, you can really outperform the market and generate significant profits while limiting your losses. We'll learn how to harness and use the power of candlestick analysis in this candlestick patterns cheat sheet.

Candlesticks are not only simple to use and understand, but they are also useful charting tools that allow you to see market patterns as they develop. Candlesticks give traders with a solid, consistent, and dependable system to guide their trading decisions as well as projecting short-term price fluctuations by allowing them to see the different changes in momentum as an instrument's price changes during the trading day.

A Quick Overview Of Candlestick Charting

Candlesticks have been used to examine investors' attitude for hundreds of years, with its origins in the martial society that dominated Japan in the 1700s. Candlesticks aid in the definition of a clearer understanding of the underlying demand and supply dynamics.

In 1989, Steve Nison was the first to present contemporary candlestick analysis to the western world. Traders have relied on candlesticks, or candles as they are more often known, to guide their trading since then.

Candlesticks are a type of charting that contains a lot of data. The candlestick patterns described in this article, along with examples, demonstrate how a trader can use candlestick charting to identify the end/beginning of a trend and confirm that it is ongoing. All of these factors create unique trading possibilities based on the trader's market position.

Characteristics of Candlesticks

Every candle you see represents the trading activity of a stock, currency pair, or other trading instrument during a specific trading session.

Candlesticks, regardless of the time span, convey crucial information about the market.

Prices at the start and end of the day

range of trading

Direction of trade

These three characteristics determine the shape of each candlestick, as shown below:

The Body

The candlestick's body is made up of the disparities between an instrument's opening and closing prices at a given time interval. The opening and closing prices are shown by the horizontal borders at the bottom and top of the rectangular candlestick body.

The difference between the opening and closing price determines the height of the body. The body is usually small if the opening and closing prices for a period are near to each other, and vice versa. If the opening and closing prices are similar, the candle's body will adopt the shape of a horizontal line rather than a rectangle.

The closing price determines the color of the body. The candle can be black or red if the closing price is lower than the opening price. The bear candle is the name given to the red candle. When the closing price is greater, though, the candle is usually colored green or white. A bull candle is also known as a green candle.

The color of a candle's body is a visual feature that allows you to quickly determine the price's general direction. The upward movement of the session is indicated by the green candle. The red candle, on the other hand, indicates a downward tendency.

Wicks for Candles

These thin line extensions above and below the body show the highs and lows that the price attained during a given session. Shadows, tails, and wicks are the terms used to describe the lines.

A long upper shadow could indicate a market that has lost buyer impetus. A long lower shadow, on the other hand, may indicate that sellers are losing steam. All of these indicators indicate to a reversal of the current trend.

Long-Candlesticks

As we've seen, the shape, color, and length of a candle are all crucial. It's also crucial to consider the candle's size. Long or short candlesticks are available.

A long candle (long bullish candle) or a long bearish candle (long bearish candle) might suggest increased momentum by buyers or sellers (long bearish candles). The duration indicates that there were significant price fluctuations between the session's beginning and closing values.

A long candlestick, according to an excellent candlestick pattern pdf, often signals a market struggle between buyers and sellers. They are, in essence, indicators of trend reversal or continuation. Long candles that appear in the direction of existing trends indicate that the trend will continue.

A long candle that appears in the opposite direction of the current trend could indicate an impending trend reversal. This is especially true when the long candle crosses or breaks through opposition or support.

The Marubozu

The marubozu is a popular long candle.

There is a body to the marubozu, but no shadows. Marubozu loosely translates to 'small hair' in Japanese. The upper and bottom shadows on this candlestick are very small or non-existent.

The marubozu's very nature is extremely revealing. The absence of extensions indicates that the buyers or sellers have market dominance or momentum, as well as outstanding strength.

The marubozu pattern comes in three variations, as illustrated below. The simplest approach to recognize the pattern is to keep in mind that there is always a flat marubozu line. At the close or open, the line could be flat. The open and close of a complete marubozu are both flat.

As you can see, there are bearish and bullish variants of all three marubozu kinds. A bullish marubozu is white/green in color, whereas a bearish marubozu is black/red in color.

The longer the marubozu, as any candlestick cheat sheet book will tell you, the more spectacular the price spike.

The Bullish Marubozu

A bullish marubozu signifies that there is so much buying demand in a certain instrument that market participants buy at all times during that session. As a result, a spike of bullishness is expected to follow, which will most likely last for the next few trading sessions.

In an uptrend, a bullish marubozu appears, which indicates that the trend will continue.

If a bullish marubozu emerges in a downtrend, there's a good chance the trend will reverse since market sentiment is shifting toward buying.

The Bearish Marubozu

A bearish marubozu indicates that the market is under so much selling pressure that players are selling the instrument at all times during the trading session. As a result, sellers have complete control of the market, resulting in a spike of bearishness that could last for several sessions.

As a result, a bearish marubozu emerging in a downtrend indicates that the trend has a good chance of continuing. When a bearish marubozu develops in an upswing, however, it indicates a potential trend reversal.

Short Candlesticks

A candlestick that is relatively short or modest indicates that buyers and sellers think that the present price for an instrument is reasonable. This is especially true when a sequence of short candles occur in a row, forming a sideways moving pattern.

When brief candlesticks come after a strong trend in either direction, they may indicate a weakening momentum and/or possible trend reversal. This is especially true now that long candlesticks have started to appear.

Doji Candles

The candlestick's body is usually so narrow that it consists of only a horizontal line when the open and close prices are identical or have a very tight range between them. A doji candle is then used to describe the candlestick.

Doji, or more precisely "doji," loosely translates to "blunder" or "error" in Japanese, pointing to the rarity of open and close prices matching.

A doji's top and lower extensions differ. A doji can give different signals depending on the size of its shadows and where it appears in the current trend.

The most essential feature of a doji, however, is that it signifies an extremely intense market battle between buyers and sellers. As a result, neither of them was able to get the price to move away from the opening.

When a doji appears in a choppy, sideways market, it is usually unnoticed. Doji candles, on the other hand, should not be overlooked in a trading market.

Doji patterns do not indicate a trend change. They, on the other hand, represent market indecision and/or equality between bulls and bears. When the market is resting after a strong move up or down, doji typically occur. The market will resume its journey after resting. However, such a pattern could be seen as a previous trend weakening.

A doji can be defined as a dragonfly, gravestone, doji star, long-legged, or four-price doji based on the placement of the horizontal open/close line, according to this chart pattern cheat sheet.

The Dragonfly Doji

When the highest price in a given session is the same as the open and close, a doji is formed. The lower wick is long, giving the dragonfly doji a T shape.

The bulls resisted the bears in that session, as evidenced by the doji's extended lower shadow. This suggests that the bears were able to force the price down for a little period of time. However, at the session's low, support emerged, and the resulting purchasing pressure drove the price back to the opening price.

If the dragonfly doji appears near the bottom of a downtrend, it might be taken as a bullish reversal candle. When confirmation occurs at a level of support, it is the most powerful.

The dragonfly doji, according to a specialist, indicates where the market tested for demand and probable support levels.

The Gravestone Doji

This one looks like an inverted T. It is the opposite of the dragonfly doji. It forms as a result of the session’s low being the same as the opening and closing price.

The extended upper shadows indicate that the bullish advance was eventually halted by the bears by the end of the session. It demonstrates that the purchasers were able to force the price upward when the session began. They, on the other hand, were unable to maintain their bullish momentum. At the session's high, resistance arose, selling pressure developed, and the bears forced the price back down to the opening price.

When a gravestone doji appears in an uptrend, it might be seen as a negative reversal pattern. Market testing could be interpreted by technicians as a search for supply and potential resistance levels.

The Doji Star

This pattern, often known as the typical doji candlestick, appears when all buying and selling is balanced.

The doji star doesn't tell much on its own. When viewed in the context of the current price movement, however, it may provide useful information.

Within an uptrend, a doji star pattern may indicate a likely change in market direction. A doji star preceded by a strong bullish candle formation (whose high is lower than the doji star's high) could be seen as a sell signal by traders.

The Long-Legged Doji

The long-legged doji is like the doji star but with longer shadows.

This pattern can be seen in a session where both sellers and buyers attempted to control the market, but neither succeeded.

The significance of the long-legged doji is determined by the distance between the closing price and the candlestick's midpoint.

The doji may be considered as a bearish bar if the closing point falls below the mid-point, especially if it occurs at a resistance level. As a result, it could indicate a likely downward trend.

The doji may be considered as a bullish bar if the closing point is above the midpoint, especially if it occurs near a support level. As a result, it could be a precursor to a prospective rise.

Four Price Doji

This extremely rare doji occurs when the open, close, high, and low prices are similar. The four price doji is so rare that you should suspect some data errors once you see it. For instance, it may form when the data source only had the closing and no other prices.

Pitfalls To Avoid

Any forex trader will tell you that there is no charting system that can guarantee 100% accuracy. Candlesticks, like all other signals, can fail. As a result, believing that candle patterns promise 100 percent accuracy and ideal entry and exit times is a bad idea.

The following are some common financial trading hazards to avoid:

Failing to Consider the Fundamentals

Price patterns emerge as a result of market-related events. Fundamental events include earnings reports, consumer indexes, and dividend announcements, among others. How prices move is determined by the fundamentals.

Forcing Indicators

Interpreting signals is never easy. Many traders continuously struggle to find good, reliable information. A common pitfall is trying to find information where none exists. A trader in a long position may, for instance, find themselves looking for bullish signals, especially when prices are going down or moving sideways. Therefore, trade objectively and study the signals carefully instead of merely looking for the type of candlestick movement you desire.

Emotional Trading

Bulls and bears both make money in financial trading, according to a common proverb. On the other side, pigs and chickens are butchered. One of the most common errors in financial trading is 'gut reacting' to market changes. Many traders, particularly rookie traders, are prone to reacting emotionally to market movements. Greed and panic are typical emotions, and they have been known to cause people to lose a lot of money.

As a result, whenever you use this candlestick patterns cheat sheet in your trading, remember to be analytical, take a strategic approach, and never let greed or panic emotions dominate your trading decisions.

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