Candlestick reversal patterns can be a boon to any trader's repertoire. Combining them with support and resistance plus trend lines can increase a trader's edge substantially. Each set below contains both the bearish and bullish counterparts. These are ideal setups that require directional movement (i.e. nothing range bound). The more volume at the given point, the more strength each of these patterns portend.
7 Important Candlesticks
Morning and Evening Stars
The morning star and the evening star do not necessarily have a doji as pictured here. The top candlestick will be shorter and if it is a doji, signals increasing odds that a reversal will take place. These two patterns, though rare, give the highest odds of reversal. Strength goes in, it faces stiff resistance, after which control shifts hands.
Southern and Northern Dojis
The southern and nothern dojis are some of the most watched patterns in the candlestick charting world. The both signal a parity between the bears and the bulls. At the moment a doji forms, and as with all these signals increased volume strengthens the pattern, momentum has been prevented from continuing. Sometimes this signals confusion, sometimes this signals a stronger opposition with increasing attrition of the side previously in control.
Hanging Man and Bullish Hammer
Both the hanging man and bullish hammer resemble the shooting star and inverted hammer, however they are flipped. The hanging man and bullish hammer display a struggle between the bears and the bulls. In the first, the bears are beginning to gain traction against prior bullish strength. In the second, any movement downward has been stalled, signalling a possible bullish reversion.
Bearish and Bullish Engulfing Patterns
In the bearish and bullish engulfing patterns, the opposing side's strength overwhelms previous advancement. These tend to be stronger than the dark cloud cover and the bullish piercing patterns. Make a note of the difference: in the engulfing pattern the second candle completely overtakes
Shooting Star and Inverted Hammer
Both the shooting star and the inverted hammer have a small body with long upper wicks. The shooting star shows the failed attempt of the bulls at maintaining control over higher price levels, while the inverted hammer is like a spring ready to pop.
Dark Cloud Cover and Bullish Piercing Pattern
The dark cloud cover and bullish piercing patterns reveal weakness in the current trend and emerging strength in the opposition.
Bearish and Bullish Harami
Identified by a long bar followed by a very short one. Harami signal a loss of momentum and a possible reversal.
