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Quick Guide to Main
Patterns
Candlestick charts give a more visual
presentation of price action than traditional bar charts and have
become the chart of choice for many technical analysts.
One candle itself can provide important
information about the strength or weakness of the market during a
given day or other time period, depending where the close is
relative to the open. However, a candlestick pattern usually takes
several candles to produce chart formations that give the best
signals.
The key in candlestick chart analysis is
where a given candle or candle formation occurs during the market
action. Candlesticks may look identical but have an entirely
different meaning after an uptrend than they do after a downtrend.
The diagrams and descriptions below cover
only some of the main candlestick patterns, showing the bullish
version on the left and bearish version on the right. There are many
other candlestick patterns with clever names that chart analysts
use.

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Bullish |
Description |
Bearish |
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“Doji stars” -
Prices
at the open and close of the period are at the same level,
indicating indecisiveness about price direction. The signal
tends to be more dependable when it appears at a top than at
a bottom.
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“Stars” -
Stars are
reversal patterns and come in several different forms. The
pattern consists of three candles, the first usually a large
candle at the end of an extended trend followed by a smaller
candle that leaves a gap or window and then another large
body candle in the direction of the new trend. Large volume
would help to confirm the reversal signal.
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“Piercing line” and
“dark cloud cover” - These reversal patterns are mirror
images of one another and are close relatives of the
engulfing patterns except that the current candle’s body
does not engulf the previous candle. Instead, the market has
a gap opening, then moves sharply in the opposite direction
and closes more than halfway through the previous candle’s
body.
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“Hammer”
and “Hanging Man” - These two reversal patterns look very
much alike, but their name and impact on prices depend on
whether they occur at the end of a downtrend or an uptrend.
The signal candlestick has a small real body and a long
lower shadow, suggesting the previous trend is losing
momentum. This pattern also requires confirmation by the
next candle.
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“Harami” -
The harami
is a reversal pattern following a trend. Rather than
engulfing the previous candle, price action for the current
candle is entirely within the range of the previous candle
body. This pattern requires immediate follow-through for
confirmation.
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“Engulfing patterns” -
Prices open below the previous close (bullish) or above the
previous close (bearish) and then stage a strong turnaround,
producing a candle body that totally engulfs the previous
candle and suggesting a change in trend direction.
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“Tweezers” -
Tweezers
are minor reversal signals that are more important if they
are part of a larger pattern. A tweezer bottom has two or
more candles with matching bottoms; a tweezer top has two or
more candles with matching tops. They do not have to be
consecutive candles. They do require follow-through for
confirmation.
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Candlestick Chart Basics
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Indecision and Continuation
Candlesticks
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Candlestick Reversal Bottoms
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Candlestick Reversal Tops
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Quick Guide to Main Patterns
Main Trading
Resources Section
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