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candlestick pattern cheat sheet

Candlestick charts were established in Japan over a century before bar charts and point-and-figure charts were invented in the West. In the 1700s, a Japanese man named Homma observed that, while there was a link between rice price and supply and demand, the markets were also heavily impacted by traders’ emotions.

The open, high, low, and close prices of an asset are displayed on a daily candlestick chart. The “true body” of a candlestick is the wide or rectangle component that illustrates the link between opening and closing prices.

Hammer

The hammer candlestick appears at the bottom of a downtrend and indicates a possible (bullish) market reversal. A hammer is a candlestick pattern that occurs when a stock opens lower than expected, then rallies back to near the opening price later in the day. The candlestick pattern resembles a hammer, with the long lower wick from the day’s lows serving as the handle and the opening and closing price bodies serving as the head. The lower wick is often twice as large as the candle body, although it can be considerably larger.

Piercing

A bullish reversal pattern that appears towards the end of a downtrend is known as a Piercing Pattern.

This candlestick pattern is utilized as a signal to initiate or quit a long or short position.

When bulls and bears are vying for control of the market, a piercing pattern is generated.

Two candlesticks make up the piercing pattern.

The first candlestick should be red with a large genuine body, and the second candlestick should be green with a low that is below the preceding candlestick’s low.

The second candlestick must close above the center of the first candlestick’s true body.

Bullish Engulfing

When a bullish engulfing candle develops at the bottom of a downtrend, it implies a reversal of the trend and a spike in purchasing pressure.

As additional buyers enter the market and drive prices upward, this pattern triggers a reversal of the current trend.

The design is made up of two candles, with the second green flame entirely swallowing the preceding red candle’s body.

The Morning Star

The morning star candlestick pattern is made up of three candlesticks.

After a negative trend, a morning star appears, signaling the start of an upward trend in pricing.

It’s a sign that the previous pricing trend is about to change.

Traders should examine the formation of a morning star and then use technical indicators to determine that a reversal has occurred.

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