Through candlestick analysis, professional and beginner traders get the chance to decipher the clues and messages that the market gives out. By studying different candlestick patterns, you can better predict what the next move of the market will be.
There are a lot of candlestick patterns that you will encounter but only a few of them are worth knowing. You will learn about the 5 popular bullish candlestick patterns. But remember each pattern should be combined with other indicators in order for you to have a stronger prediction of price movement. These are reversal patterns so they're really very important not just for beginner traders but to all traders. These patterns usually show up after a pullback or a rally.
1. Engulfing pattern
I have to say that this is probably every trader's favorite candlestick pattern. It has 2 candles. The first candle appears on the first day and it is a narrow range candle. This implies that the sellers who are in control of the stock are not very aggressive. On the second day, notice the second candle appears. This time, it's a wide range candle. Since it "engulfs" the first candle, this is where this pattern got its name. On this day, the buyers are in control. There is higher demand and the supply is low.
2. Hammer
The hammer appears when the sellers are the ones who are in control of the stock, thereby lowering the stock price. This gives the buyers the chance to take control of the stock and close the stock at the top of the range. This is when many professional traders get in to take advantage of the low stock price.
3. Harami
When a Harami pattern shows up, it means that the previous momentum has stopped. With a Harami pattern, the first one candle appears as a wide-range candle. The candle closes near the bottom of the range. The first candle shows that the sellers are in control. On the second day, however, it is replaced by a narrow range candle.
4. Piercing
Just like the Engulfing and Harami pattern, Piercing also consists of 2 candles. It's still a reversal pattern. With a piercing pattern, the wide-range candle appears first on the first day. It closes near the bottom of the range. The sellers own this part of the trade. Another wide-range candle will appear on the second day. This one closes halfway into the first. So basically, if you'e shorted the stock the day before, expect to lose some money on the second day.
5. Doji
Although mentioned last, Doji is probably the most popular candlestick pattern. It basically represents indecision in the market. Traders also watch out for reversals that could happen when a doji appears. Traders prepare for what may happen next when the doji appears.
So these are the 5 popular bullish candlestick patterns that you have to know as a beginner trader. Don't get me wrong though, you need to know more than just 5 candlestick patterns if you want to succeed as a trader. This is just an introduction. Let me reiterate the importance of other indicators in the prediction of price movement. Like what I have said before, it gives you a better chance of making correct predictions.
