Four Candlestick patterns! Found best for me

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.

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.

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.

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.

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

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