5 Most Powerful Trade and Candlestick Patterns You Should Know

The candlestick chart is a unique analysis tool. It is one of the most popular and widely accepted methods of price charting. The famous trade platform, MetaTrader5, has been using candlestick regularly. It has various color coding, patterns and shapes.

The buyers can easily understand market conditions by just looking at their patterns. These patterns give you predictions of which direction the market will go.

This way you will be able to understand when to enter and exit trades. That is why it is important to know how to read patterns of candlesticks.

Types of Candlestick Patterns

Candlestick chart patterns are categorized on the basis of trade setup and numbers. If we consider trade setups, there are five main candlestick patterns and each of them has sub-patterns. The main patterns are Bullish reversal, Bullish continuation, Bearish reversal, Bearish continuation, and Indecision.

1. Bullish Reversal Candlestick Patterns


The Bullish reversal pattern generally occurs at the bottom of a downtrend. It indicates that the price will eventually begin to rise up. This is the perfect opportunity for buyers to enter and invest in stocks. The price of their stock will rise and they will earn money from their relatively small investments.

The most common Bullish reversal patterns are Hammer, Bullish engulfing, Piercing patterns, Tweezer bottom etc.

All of these patterns signify the future rise of stock price. Reasons for these rises could be intense buying force and shift in power, control. This indicates a good opportunity for making profit. But it’s not safe to make investment decisions based on only candlestick patterns. You must take help of other analytical tools such as trend lines, trending indicators and resistance level.

2. Bullish Continuation Candlestick Patterns

This pattern occurs at any point of an uptrend. This interprets as the continuation of price rising. The common Bullish continuation patterns are Deliberation patterns, Bullish separation lines, Advance block, Hanging man and Bullish trend harami.

When these patterns occur, it is up to your own decision whether you should continue or not. The occurrence of these patterns generally indicates price rising to continue. But sometimes the price starts falling overnight. The main catalyst for this is the doubts in the buyers’ minds.

So, we suggest you keep all eyes open and use all analytical software to monitor the market when this pattern occurs. And be ready to pull out of the market any time you see a downfall occurs.

3. Bearish Reversal Candlestick Patterns

This pattern is the opposite of the Bullish reversal patterns and appears at the end of an uptrend. The interpretation is that the price will start declining at any moment and the buyers will incur heavy losses. It is better to exit the market before it’s too late.

The most common Bearish reversal continuation patterns are Shooting star, Bearish engulfing, Evening star, Tweezer top and Bearish harami. The main reasons for these patterns to occur are strong selling pressure, buyers’ price pushing, etc.

Keep in mind that you should not withdraw from the market just because of these patterns. You must match other analysis results with the patterns. If the results indicate a downfall, then you must be prepared for exiting the market.

It is better to withdraw when the patterns and uptrend reaches the resistance level, as it is not likely to be a trend to go over the resistance level.

4. Bearish Continuation Candlestick Patterns

This is a very tricky and confusing pattern. It can occur at any point in the downtrend. You might misinterpret them as a rise in the stock price. And if you invest at that moment, you will incur heavy financial losses. So, it is important to understand and mark the difference between a Bearish continuation pattern and a Bullish reversal pattern.

The common Bearish continuation patterns are Concealing baby swallow, Falling three methods, Bearish separating lines, Bearish trend doji star, Stick sandwich, unique three river and Bearish trend Harami.

Among these the Falling three methods, Separating lines, Stick sandwich and trend harami are quite identical to Bullish reversal candlestick patterns.

The main reason for their similarities could be that the bears decided to take a break from pushing the market price down and the buyers decided to use that opportunity. But their attempt was weak and the bears pushed them back again.

On the other hand, Bearish separate lines are the result of the buyer’s sudden strength of pushing the price up. This could have turned the table, but the buyers strengths get declined immediately. Stick sandwich is an actual Bullish reversal pattern but the sellers immediately obliterate the price rise and turn it into a Bearish continuation pattern.

Even with full use of analytical tools, personal knowledge and experience, it becomes very difficult to understand when the Bearish continuation patterns are ending and when to invest in the market. So, it is a leap of faith for the buyers to enter the market at these

5. Indecision Candlestick Patterns


It indicates equilibrium in the market. Usually, it occurs when both buyers and sellers are equally strong. At this stage, it is kind of risky for both investing and withdrawing. Because at the end of this period, prices can either go up or go down.

The common Indecision candlestick patterns are Neutral doji, Dragonstone doji, Gravestone doji and Spinning top.

The Neutral doji occurs when both buyers and sellers maintain their stands. As a result, the candlestick appears to have no body. The opening and closing points are the same and they are in the middle of the wick. As a result, it is impossible to understand if there is any profit or not.

The Dragonfly doji looks like the letter ‘T’. Both opening and closing points are at the top of the wick. As a result, there is no upper wick. The Gravestone doji is the inverted version of the Dragonfly doji.

The Spinning top is the only Indecision pattern with a real body. The body is small and the shape is vertically symmetric. There is no notable profit or loss in the Indecision stage.

But getting involved is very risky because the outcome has two ends. Analytics and experience are not very helpful.

So, if you have the capacity of bearing the risk, we would suggest you to invest. Otherwise, don’t.

Bottom Line

The Candlestick chart can help you to identify sudden market changes and power shifts. But it cannot help you to make investment decisions by itself. You will need supporting tools and software alongside your knowledge and experience of investments.

So ultimately, it is you who is making the decisions and taking the actions. The chat is just a helping hand.

Read also:
How many trading days in a year?