Some Candlestick Chart Patterns Have Quirky Names, But Don"t Let That Fool You
The Hammer, the Doji, the Shooting Star, the Harami, the Dark Cloud Cover: all real Candlestick chart patterns, and each has a personality all its own.
Each one of them warns of the possibility of a trend reversal; and that's what makes Candlestick analysis and trading so exciting.
We live for reversals.
In the Doji, the opening price and the closing price are the same, or nearly so.
If it appears at the top of a long uptrend or at the bottom of a long downtrend it is a warning of a possible reversal.
It is as if the horse's rider had reined him short after a hard run, to give the horse a chance to catch its breath and also to take a look around at the surroundings.
Or you might consider it to be a "Full Stop" sign at a four-way intersection.
It's a break in the action.
The Hammer emerges only at the end of a long downtrend.
Oftentimes it stands there as a lone price bar, below price action of previous days.
It will have a small "real body" (price range between opening and closing prices) at or near the top of the bar.
It will have a long tail below, showing that the bears tried to drive prices lower, but in the end they failed.
The Hammer is a bullish pattern which needs no confirmation.
Many traders will enter Long positions at the end of a trading day if it appears that a Hammer will be the ending formation of the day.
The Morning Star also appears at the bottom end of a long downtrend.
It is a three-bar affair, of which the first bar will be a tall black candle indicating a strong Down day.
The middle bar will have a small real body, of which prices will be near, or below, the closing price of the previous (tall black) candle.
The third bar will be a tall white candle, signifying a complete turnabout in mood from bearish to bullish.
As you might surmise, the Morning Star is a strongly bullish formation - one of the most powerful Candlestick chart patterns.
A variation of the Morning Star (which I believe deserves recognition as a legitimate Candlestick Reversal Pattern in its own right) sparked the major rally which began on March 10, 2009.
Each one of them warns of the possibility of a trend reversal; and that's what makes Candlestick analysis and trading so exciting.
We live for reversals.
In the Doji, the opening price and the closing price are the same, or nearly so.
If it appears at the top of a long uptrend or at the bottom of a long downtrend it is a warning of a possible reversal.
It is as if the horse's rider had reined him short after a hard run, to give the horse a chance to catch its breath and also to take a look around at the surroundings.
Or you might consider it to be a "Full Stop" sign at a four-way intersection.
It's a break in the action.
The Hammer emerges only at the end of a long downtrend.
Oftentimes it stands there as a lone price bar, below price action of previous days.
It will have a small "real body" (price range between opening and closing prices) at or near the top of the bar.
It will have a long tail below, showing that the bears tried to drive prices lower, but in the end they failed.
The Hammer is a bullish pattern which needs no confirmation.
Many traders will enter Long positions at the end of a trading day if it appears that a Hammer will be the ending formation of the day.
The Morning Star also appears at the bottom end of a long downtrend.
It is a three-bar affair, of which the first bar will be a tall black candle indicating a strong Down day.
The middle bar will have a small real body, of which prices will be near, or below, the closing price of the previous (tall black) candle.
The third bar will be a tall white candle, signifying a complete turnabout in mood from bearish to bullish.
As you might surmise, the Morning Star is a strongly bullish formation - one of the most powerful Candlestick chart patterns.
A variation of the Morning Star (which I believe deserves recognition as a legitimate Candlestick Reversal Pattern in its own right) sparked the major rally which began on March 10, 2009.