Predict the future price movement and see your trade gain – that's a tale as old as time.
But how can a trader predict future market movement? Do their guts tell them how the market will move? No.
Market patterns are one tool for predicting future price direction. They illustrate the psychology of buyers and sellers and help predict future price movement.
Among the common patterns to use for this are the single candlestick patterns. They are quick to spot and easy to interpret- however, they often provide empty or even false signal.
Candlestick patterns are categorized into three groups: the Singles, Duals, and Triples.
Basically, this categorization represents how many significant candles there should be to confirm the signal.
As the name suggests, single candlesticks only require one significant candle to signal a potential market reversal.
These patterns are common in the market. However, trading them requires a thorough multi-indicator analysis to ensure the signal's accuracy. One way to avoid trading false signals is by asking the community to verify your analysis.
If you can spot these patterns effectively, it’s easier to anticipate future market reversals. Expect to yield high returns the moment you can easily anticipate market direction.
A Doji candle has a small real body and an upper and lower body that are of a relatively similar size. This consolidation candle has three looks:
The formation of a doji candlestick indicates that neither the bulls nor the bears are taking control of the market. The price consolidates on the established support and resistance levels.
The formation of a hanging man candlestick entails a bearish reversal movement in the market.
This pattern forms a candle with these five characteristics:
While the color of the candle is not as significant as the five mentioned above, a red or bearish candle provides a stronger signal than green candles.
The formation of a hammer candlestick signals the end of a bearish market due to the intervention of the bulls.
A hammer candlestick looks similar to the hanging man candlestick – they can even share the same color.
However, the difference between the two lies in the candle’s preceding trend and the signal it provides.
Contrary to a hanging man candle, a long lower shadow signifies that the sellers try to push down the price further. However, the intervention of the bulls closes the price at a significantly higher level than the low.
A shooting star candle indicates that the price (shooting star) will fall from its peak (the sky). It’s a bearish reversal pattern.
But what really happens to the market during this formation?
Simple: The ongoing bullish trend is about to run its course due to the intervention of sellers.
Additionally, the formation of this candle indicates that the asset opened at its low, rallied up, but then pulled down due to the intervention of sellers in the bullish market.
This signifies the efforts of the bulls to continue the trend, but the sellers came in and overpowered them.
An inverted hammer is the counterpart of the hammer – it can look exactly the same as the shooting star candlestick: extended upper shadow, small real body, and little to no lower shadow.
So, how can you differentiate an inverted hammer from a shooting star? You look at the preceding trend in which it came.
The inverted hammer forms at the bottom of the bearish market to indicate the sellers' weakening momentum. The moment this candle forms, it signals a bullish reversal.
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