Secrets To Read Candlestick Patterns

What is a candlestick pattern and how does it work?

A candlestick pattern has 4 data points:

  • Shooting Star
  • Bullish Engulfing Pattern
  • Bearish Engulfing Pattern

Hammer

  • The price closes at the top ¼ of the range
  • The lower shadow is about 2 or 3 times the length of the body
  1. After too much selling, huge buying pressure comes in and pushed price higher
  2. The buying pressure is so strong that it closed above the opening price

Bullish Engulfing Pattern

  • The body of the second candle completely “covers/engulf” the body first candle (without taking into consideration the shadow)
  • The second candle closes bullish
  1. On the second candle, strong buying pressure comes in and closed above the previous candle’s high — which tells you the buyers have won the battle for now

Shooting Star (The opposite of a Shooting Star is Hammer.)

How to recognize it:

  • Little to no lower shadow
  • The price closes at the bottom ¼ of the range
  • The upper shadow is about 2 or 3 times the length of the body

And what a Shooting Star means…

  1. When the market opens, the buyers took control and pushed price higher
  2. At the buying pressure, huge selling pressure comes in and pushed price lower
  3. The selling pressure is so strong that it closed below the opening price

Bearish Engulfing Pattern

  • The body of the second candle completely “covers/engulf” the body first candle (without taking into consideration the shadow)
  • The second candle closes bearish
  1. On the second candle, strong selling pressure comes in and closed below the previous candle’s low — which tells sellers have won the battle for now.

Understand Any Candlestick Pattern Without Memorizing

#1: Trending Move

What is a Trending Move?

#2: Retracement Move

A Retracement Move is the “shorter” leg of the trend.

#3: Swing Moves

Swing Points/Moves refer to swing highs and lows — the “points” on the chart where the price reverses from.

What’s Next

In my next blog, I will explain a simple Price Action setup in order to take trades in live markets. And the best part is there will be no indicators, so its purely Price Action based.

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