Four Candlestick patterns! Found best
for me
Kazi Md. Rakibul Hoque
Candlestick pattern is one of the
most important and versatile tools in technical analysis. It is the popular
& commonly used because with a little practice one can easily presage the
future move of a stock, commodities, gold, etc. Before going to my topic, I
will give a short brief about the candlestick pattern. It was first introduced
in the 17th century in Japan. They used it to trade rice. Monihashi Homma a
legendary rice trader was mainly developed candlestick charting pattern and
later in 1850 Mr. Steve Nison has brought it in the Western world. At that time
Nison wrote a book named “Japanese
candlestick charting techniques” which I believe a unique one. In this
book, Nison described precisely about candlestick pattern and how we will use
them with western technical analysis techniques.
To create a candlestick pattern, it
is mandatory to have open, high, low and close price for each time period we
want to display. A candle might be used to measure and assess the price change
of certain stock for daily, weekly, and monthly view. If we want to know what would be the weekly price change of a
stock, we will see the weekly chart, in the same way; we will see the daily and
monthly change of an index, stock, commodity, currency, etc.
Now, I go back to my topic.
Currently, more than thirty six candlestick patterns are available, but it is
hard to remember all of them. Candlestick pattern divided into three parts,
bullish, bearish & neutral pattern. Bullish and bearish is a reversal
pattern which shows after a downward
and an upward trend. Neutral pattern indicates indecision between buyer and
seller. Some popular candlestick pattern is hammer,
hanging man, inverted hammer, shooting star, dark cloud cover, engulfing,
harami or pregnant, morning star, evening star, three white soldiers, three
black crows, etc. I have applied more or less all those pattern & found
dark cloud cover, bearish engulfing, hammer& hanging man showing more
accurate signal.
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Dark cloud cover is a bearish dual
candlestick pattern where day 1 candle continues uptrend with the long green
body. On day 2 it opens in high price, but it closes below the center point of
the day 1 candle.
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Bearish engulfing is a dual
candlestick pattern that can appear at the end of an uptrend. The day 1 candle
is a bullish candle with a small body, followed by day 2 candles whose body
engulfs the previous day's body. This pattern is strongly bearish pattern.
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Hammer is a bullish single
candlestick pattern which forms after a downtrend where high & close almost
same when the candle is green. In the same way, open & high same when the
candle is red. When a same candlestick pattern is formed after an uptrend, it’s
called hanging man.
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Location is very important in
candlestick analysis. I have used note of interrogation in the above four
charts where we see candlestick patterns are not working properly or
effectively because of its wrong placement or location. We will try to find out
or cherry pick a bullish candlestick pattern in a downtrend and bearish
candlestick pattern in an uptrend. So it is obviously the person who is doing
candlestick pattern analysis he needs to have sufficient knowledge about trend
analysis. Without knowing trend analysis, it is of no use. To know about trend
analysis, please read my next Article “how
you easily identify a trend”.
Data sources: Stock
Bangladesh Limited
OnlineTradingConcepts.com
Web site
