If you want to become an expert in trading then you must know the candlestick pattern. So in this article, you will learn about 6 candlestick patterns.
Hammer candlestick pattern in Trading
The candlestick that is formed in this candlestick pattern is formed like this. It has a long stick at the bottom, it is called Lower Wick and the short stick above it is called Upper Wick.
How to Identify the Hammer Candlestick Pattern:
- Stock should be in a Downtrend. That is, the share price should be falling. If the share price is increasing then we will not consider it as a Hammer candlestick pattern signal.
- For a candle to become a Hammer candlestick pattern, it should not have an upper wick or be too small. And the lower Wick should be very long.
The size of his body should be longer than his double. - The Hammer candlestick pattern can be either Green or it can be Red.
But if the candlestick is green then it is considered more positive but if there is a Red candlestick then we will also consider it as a Hammer candlestick pattern. - After the Hammer candlestick pattern is formed, its further candlestick is formed, it should be above Hammer candlestick only then it will consider Hammer candlestick pattern Signal.
Hammer candlestick pattern will not be considered a signal if it is formed below it.
If these four conditions are fulfilled then it means that the market can change the trend from here. Till now the share price was falling down and now it can rise from here.
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So this is a bullish signal and you can buy from here. So the entry you have to take in this, you have to take it above the hammer candlestick.
That is, in the next candlestick that is formed, when it comes above the Hammer candlestick, then entry has to be taken and your Stop Loss will be the lowest point of the hammer candlestick.
Hanging Man Candlestick pattern in Trading
This pattern looks exactly like the Hammer candlestick pattern but it gives a bearish signal. That is, after the formation of this pattern, the share price may fall.
Four conditions are also necessary for the identification of this pattern:
- Stock should be in an uptrend. That is, the share price should be increasing. Whereas in the Hammer candlestick pattern the stock price should be falling.
The stock should have been in a downtrend but in this pattern, the share should be in an uptrend. - In this also like the Hammer candlestick pattern, the upper wick of the candlestick should be small and the lower wick should be large. That’s why it looks like a Hammer candlestick pattern.
- Hanging Man candlestick can also be both Green and Red, but if it is Red then it is considered a more valid signal as it gives a bearish signal.
- After the formation of the Hanging Man candlestick pattern, the next candlestick that is formed should be formed below the Hanging Man candlestick.
If these four conditions are followed then it means that the trend is going to change. Till now the share price was rising and now it may fall. So this is a bearish signal and here you can short sell.
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In this, your entry will be in the next candlestick which is made below, and your Stop Loss because you are selling short then will be at the highest point of the Hanging Man candlestick.
Difference between Hammer candlestick pattern and Hanging Man candlestick pattern
If you still have confusion in the Hanging Man candlestick and Hammer candlestick pattern then you can understand by looking at this picture.
Hammer candlestick pattern is formed in downtrend whereas Hanging Man candlestick pattern is formed in an uptrend.
The Hammer candlestick pattern gives a buy signal whereas the Hanging Man candlestick pattern gives a sell signal.
Inverted Hammer candlestick pattern in Trading
Inverted is an inverted Hammer candlestick pattern.
But its work is exactly the same as the Hammer candlestick pattern, the only difference is that the lower wick in the Hammer candlestick pattern is longer and the upper wick is either short or not.
Whereas in the Inverted Hammer candlestick pattern the upper wick is longer while the lower wick is either short or not.
Only then it looks like an inverted Hammer candlestick pattern.
These four conditions must be fulfilled for a candlestick to become an Inverted Hammer candlestick:
- Share should be in Down Trend. That is, the share price should be falling. The same conditions were also for the Hammer candlestick pattern.
- The upper Wick in it should be long, while the lower Wick should either be short or it should not be there.
This is the second condition, the only difference is between the Hammer candlestick pattern and the Inverted Hammer candlestick pattern.
- It can be both green and red but if it is green then it will be a more valid signal.
- After the formation of the Inverted Hammer candlestick pattern, the next candlestick that is formed should be higher than the Inverted Hammer candlestick.
So when these four conditions are fulfilled then that candlestick is an Inverted Hammer candlestick pattern and it gives a bullish signal. That is, the price may increase from here.
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The trend can change from here. Till now the share price was falling, now it can go up from here, so you can buy if you want.
If you buy then the next candlestick that is formed after the Inverted Hammer candlestick, you will have to take Entry there, and your Stop Loss will be the Lowest Point of the Inverted Hammer candlestick.
Shooting Star candlestick pattern in Trading
This candlestick looks exactly like the Inverted Hammer candlestick, the only difference is that it is formed in an uptrend and gives a bearish signal.
Whereas Inverted Hammer candlestick pattern is formed in Down Trend and gives Bullish Signal.
For this also it is very important to have 4 conditions fulfill:
- Stock should be in Uptrend. That is, the share price should be increasing. After that, the Shooting Star candlestick pattern was formed.
Whereas in the Inverted Hammer candlestick pattern, the stock price should have been falling and the stock should have been in a downtrend.
- The Upper Wick in the Shooting Star candlestick should be long and the Lower Wick should be short, just like the Inverted Hammer candlestick.
- Shooting Star Candlestick can be Green as well as Red. But if it is red then it is considered a more valid signal because it is giving a bearish signal.
- After the formation of the Shooting Star candlestick, the next candlestick that is formed should be below the Shooting Star candlestick, only then it can be confirmed that after this the share price can fall.
If these four conditions are fulfilled then you can sell the stock or short sell as it gives a bearish signal. And this shows that after this the price of the share can go down.
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If you sell short then the next candlestick which will be formed after Shooting Star candlestick, you will have to take entry there and your Stop Loss will be at the Highest Point of Shooting Star candlestick there.
Bullish Engulfing candlestick pattern in Trading
It is known from its name that it gives a bullish signal. So whenever the market is in a downtrend and downtrend such a red candlestick is formed and after that red candlestick, such a green candlestick is formed which completely engulfs the first red candlestick.
That is if it covers then it is a Bullish Engulfing candlestick pattern.
In this, the second green candlestick is open below the first red candlestick and closed above the first candlestick, then it will cover the first candlestick completely.
So whenever this kind of candlestick pattern is formed, it is called bullish engulfing candlestick pattern and from here the share price can increase. So you can buy it here.
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If you want to buy then the next candlestick that will be formed after this green candlestick, you will have to buy there.
That candlestick should be above this green candlestick and your stop loss will be at the lowest point of the green candlestick.
Bearish Engulfing candlestick pattern in Trading
This is just the opposite of bullish engulfing and it gives a bearish signal. That is, after the arrival of this signal, the share price may fall.
So whenever the share is moving on the uptrend (the share price is increasing) and after that, if a green candlestick comes and after that green candlestick a red candlestick comes which will cover that green candlestick completely. That is, if it engulfs, then this pattern is called bearish engulfing candlestick.
As if you are looking at 2 candlesticks. The red candlestick has completely covered the green candlestick, and the red candlestick’s opening price is above the green candlestick.
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And the closing price which is below the green candlestick is still engulfing the green candlestick i.e. covering it.
So whenever this type of pattern is formed, it is called bearish engulfing. And after that, the share price may fall.
So if you want, you can short sell here, and if you short sell, then after this bearish candlestick, you will have to take entry in the next candlestick that will be formed below it.
And the highest point of the green candlestick will be your stop loss.
Other candlestick patterns in Trading
- Piercing Line pattern
- Dark cover Cloud
- Bullish Harami
- Bearish Harami
- Morning Star
- Evening Star
- Bullish Kicker
- Bearish Kicker
- Gravestone Doji
- Dragonfly Doji
- Long Legged Doji
- Doji Star
The stock should be in a Downtrend. That is, the share price should be falling. If the share price is increasing then we will not consider it as a Hammer candlestick pattern signal.
The stock should be in an uptrend. That is, the share price should be increasing. Whereas in the Hammer candlestick pattern the stock price should be falling. The stock should have been in a downtrend but in this pattern, the share should be in an uptrend.
The share should be in Down Trend. That is, the share price should be falling. The same conditions were also for the Hammer candlestick pattern. The upper Wick in it should be long, while the lower Wick should either be short or it should not be there.
The stock should be in Uptrend. That is, the share price should be increasing. After that, the Shooting Star candlestick pattern was formed. Whereas in the Inverted Hammer candlestick pattern, the stock price should have been falling and the stock should have been in a downtrend.
It is known from its name that it gives a bullish signal. So whenever the market is in a downtrend and downtrend such a red candlestick is formed and after that red candlestick, such a green candlestick is formed which completely engulfs the first red candlestick.