Category: Forex Candlesticks

Articles about candlesticks, properties, and uses. This is a sub-section of Forex chart Basics which includes all articles related to candlesticks, its properties, the prevalent psychology behind candlestick patterns and formations, and also a description of the main ones.

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Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns V – The Morning Star and the Evening Star

The Morning Star and the Evening Star

The Morning Star and the Evening Star

The Morning Star and the Evening Star

The morning Star and the Evening Star formations are patterns made of three candlesticks. The original candlestick patterns were made on the Japanese rice futures trading and were created for daily timeframes. Thus, they could depict gaps from the previous close to the next open. The Star was a small real body – white or black – that was gaping away from a previous large body. The only place where that could occur in the Forex markets is during weekends. Thus, what is required to form a star in Forex is a small body, the smaller, the better, at the end of a large body, preferably with large shadows.

The Morning Star

The Morning Star is a three-candle formation at the bottom of a descending trend. In astronomy, Mercury is the morning star that foretells the sunrise and the arrival of the day. That was the name the Japanese gave to the formation, as they consider it to be the precursor of a new uptrend.

As said, it is formed by three candlesticks. The first one is a large and black candlestick. The session day the price starts with a gap down (or just at the close in Forex) continues moving down for a while, then it recovers and closes near the open, creating a tiny body. The third day is a white candlestick that closes near the open of the first black candlestick. The important factor in the signal is the confirmation of buyers after the star candle is formed. The close of the third day should, at least, cross the halfway up to the black candle body, as in the case of a piercing pattern. 

Chart 1 – Morning Star on the DAX-30 Index (click on it to enlarge)

Criteria for a Morning Star 
  1. The downtrend was evident
  2. The body of the first candle continues with the trend (black)
  3. The second candle is a short body figure showing indecision
  4. The third day the candle closes at least above 50 percent the body of the black candle.
  5. The larger the black and white candles, the better.
  6. A gap is desirable but doesn’t count on it on 24H markets
  7. A high volume in the first and third candles would be good signs of a selloff and consequent reversal.
Market Psychology

As in most bullish reversals, the first day, the hopeless bulls capitulate with a significant drop and substantial volume. The next day the power of the sellers stops in a short-bodied candle. The third day began bullish, touching the stops of the late short-sellers, and also caused by the close of positions of profit-takers. That fuels the price to the upside, making more short sellers close their positions -buying- and pushing up further the price. At the end of the day, buyers take control of the market action closing with a significant white candle on strong volume.

The Evening Star

The Evening star is the reciprocal of the Morning star, and even more so, when trading pairs in the Forex market, or any pair, for that matter. In this case, the Japanese linked this formation with the Venus planet, as the precursor or the night. It is created when a long white candle is followed by a small body and a large black candle.

As the case of the Morning Star, a gap up on the second small-bodied candle followed by a gap down on the third black candle is further confirmation of a reversal, but that seldom happens in the Forex Market.  Also, the third candlestick is asked to close below 50 percent of the body of the first white candle.

 

Chart 2 – Evening Star on the EURUSD Pair (click on it to enlarge)

Criteria for an Evening Star
  1.  The upward trend has been showing for some time
  2. The body of the first candle is white and large.
  3. The second candlestick shows indecision in the market
  4. On the third day, it is evident that the sellers have stepped in and closes below 50 percent of the initial white candle.
  5. The longer the white and black candles, the better
  6. A gap before and after the second candle is desirable, although not attainable in Forex.
  7. A good volume in the first and third candles is also desirable.
Market Psychology

The uptrend has attracted the buyers, and the last white candle has seen an increasing volume. In the next session, the market gapped of continue moving up for a while, catching the last stops by short-sellers, but suddenly retraces and creates a small body, with the close next to the open. The next day there is a gap down makes the stops of the long positions to be hit, adding more selling pressure to the profit takers and short-sellers. The day ends with a close that wipes most of the gains of the first white candle, that shows that the control is in the hand of sellers.

 

 

Reference: Profitable Candlestick Patterns, Stephen Bigalow

 

 

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Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns IV – The Hammer and The Hanging Man

 

 

 

The Hammer

The Hammer is a one-candle pattern. The Hammer is identified as a small body with a large lower shadow at the bottom of a downtrend. The result of having a small body is that the open and the close are near each other. The large lower shadow means during the session sellers could move down the price but, then, buyers stepped in and pushed the price back to the levels of the open, or, even, a bit further up. That means sellers lost the battle, and the buying activity started dominating the price action. A positive candle is needed to confirm the price action. This usually converts this candle into a Morning Star formation.

Chart 1 – Hammer in the USDCHF Pair

Criteria for Hammers

  1. The lower shadow must be at least twice the length of the body
  2. The real body is at the upper side of the range. The color does not matter much, although a white body would increase the likelihood of the reversal.
  3. There should be no upper shadow or a very tiny one.
  4. The longer the lower shadow, the better
  5. A large volume on the Hammer is a good signal, as a blob woff day might have happened.

Market Psychology

After a relatively large downtrend, the sentiment of the traders is rather bearish. The price starts moving down at the open and makes a new low. Then, buy orders to move the price up. Profit-taking activity also contributes to the upward move. Then intraday stop-loss orders come in fueling the action further up. A positive follow-up candle would confirm the control of the action by the buyers.

The Hanging Man

The Hanging Man is also a figure similar to a Hammer, with its small body and large lower shadow, but it shows up after a bullish trend. The Japanese named this figure that way because it looks like a head with the body and feet hanging.

Chart 2 – Three Hanging Man in the DOW-30 Index

Criteria for the Hanging Man

  1. The lower shadow must be at least twice the length of the body
  2. The real body is at the upper side of the range. The color does not matter much, although a white body would increase the likelihood of the reversal.
  3. There should be no upper shadow or a very tiny one.
  4. The longer the lower shadow, the better
  5. A large volume on the Hammer is a good signal, as a blowoff day might have happened.

Market Psychology

After a strong trend, the sentiment is quite positive and cheerful. On the day of the Hammer, the price moves higher just a bit, then it drops. After reaching the low of the session, the buyers step in again and push the price back up, close to the open level, at which level the session ends. This would indicate the price action is still in control of the buyers, but the considerable drop experienced in the first part of the session would mean the sellers are eager to sell at these levels, and a resistance zone was created. A lower open or a black candlestick the next day would move the control to the sell-side.

Reference.
Profitable Candlestick Patterns, Stephen Bigalow

Categories
Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns III: Understanding the Harami

So far, the reversal formations we saw – the Piercing Pattern, the Dark Cloud Cover, and the Engulfing patterns, were strong reversal signals, showing that the bulls or bears had the control. The Harami is usually a less powerful signal.

So far, the reversal formations we saw – the Piercing Pattern, the Dark Cloud Cover, and the Engulfing patterns, were strong reversal signals, showing that the bulls or bears had the control. The Harami is usually a less powerful signal.

So far, the reversal formations we saw – the Piercing Pattern, the Dark Cloud Cover, and the Engulfing patterns, were strong reversal signals, showing that the bulls or bears had the control. The Harami is usually a less powerful signal.

The Harami is created when a short candle’s body is entirely contained inside the body of the preceding candle. The color of the second body of this pattern is unimportant, although the color of the first one follows the trend (black in downtrends and white in uptrends). The name “Harami” comes from the old Japanese word meaning “pregnant.” Japanese traders call the first candle, “the mother,” and the second one, “the baby.
The appearance of a Harami is indicative that the current trend has ended. According to Steve Nison, the Japanese say the presence of a Harami shows the market is losing its breath. They contend that, after a large healthy candle, the small inside candle shows uncertainty.
We have to say that if we look at the charts, harami-like formations appear often, but most of it was just pauses or pullbacks of the primary trend. Thus, although not good enough to call for a reversal of the trend, they could be potential signals to exit a trade or take partial profits.
Also, we have to remember that, since trading the Forex markets, and, also, intraday, there are no gaps available. This fact makes a harami quite similar to a Piercing pattern or a Dark cloud Cover if the body of the second candle surpasses half of the previous body.

Chart 1 – Several Haramis in the Cable.

As we see in chart 1, haramis and engulfing patterns are alike, with the exception of the second one.  What we can see is that be it harami or engulfing, the pattern is worth to pay attention to since most of the time signals the end of the previous leg.

Criteria for a Bullish Harami

  1. The body if the first candle is black (red) and the body of the second candle is white (green)
  2. There is evidence of a downtrend.
  3. The second candle opens higher or at the close of the first candle.
  4. Just the body needs to be inside the body of the first candle. That is unlike the inside day.
  5. A confirmation is needed for a reversal signal.
  6. The longer the black and white candles, the more powerful the signal
  7. The higher the white candle closes, the better.

Market Psychology of a Bullish Harami

After a selloff day, the next day, sellers don’t have the strength to push the prices further down. Concerned short-sellers start to take profits of just close the trade fuelling the purchases. The price finishes higher, and traders mark the double bottom as support. A strong day following the harami formation would convince the market participants that the trend has reversed.

Criteria for a Bearish Harami

  1. The body if the first candle is white (green) and the body of the second candle is black (red)
  2. There is evidence of an uptrend.
  3. The second candle opens lower or at the close of the first white candle.
  4. Just the body needs to be inside the body of the first candle. That is unlike the inside day.
  5. A confirmation is needed for a reversal signal.
  6. The longer the white and black candles, the more powerful the signal
  7. The lower the black candle closes, the better.

Chart 2- Several Haramis in the GBPAUD pair. Not all are successfully signaling a reversion of a trend

Market Psychology of a Bearish Harami

After a strong bullish trend, a long white candle emerges. In the next session, the longs cannot force more upsides. The asset began to drop, as concerned bulls are closing their positions to pocket their profits, and the day finished lower. Also, short-term traders mark the top of the white candle as a resistance level. A third day showing weakness is what is needed to convince everybody that the uptrend is over and a new leg down is starting.

References:

Profitable candlestick Patterns, Stephen Bigalow

The Candlestick Course: Steve Nison

 

Categories
Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns: Refresh your Knowledge

After our last articles on candlestick reversal patterns, test your kowledge.

After our last articles on candlestick reversal patterns, test your kowledge.

After our last articles on candlestick reversal patterns, test your knowledge.

If you need to give a second read, these are the links:

 

 

Let’s begin

 

[wp_quiz id=”59882″]

 

 

Reference:

The Candlestick Course: Steve Nison

 

Categories
Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns II: Let’s know The Engulfing Patterns

 

 

 

The engulfing pattern is a major reversal figure, and it is composed of two inverted candlesticks, as in the case of the Piercing pattern and the Dark Cloud Cover figure. Typically, this figure appears at the end of an upward or downward trend. It is common that the price pierces a significant resistance or support level, then making a gap up or down in the following session, to, suddenly, change its direction and end the day entirely covering the first candle.

The Bullish Engulfing

The bullish engulfing candle shows at the bottom of the trend. After several sessions with the price controlled by sellers, another black candle forms. The next session opens below the previous session close and closes above the last open, thus, completely covering the body of the black candle made on the previous session.

Criteria:

  1. The body of the second candlestick covers completely that of the black candle.
  2. There is evidence of a downward trend, even a short-term one.
  3. The body of the second candle is white and of the opposite color of the first candlestick. The exception is when the first candlestick is a doji or a tiny body. In this case, the color of the first candle is unimportant.
  4. The signal is enhanced if a large body engulfs a small body.
  5. a Large volume on the engulfing day also improves the signal.
  6. A body engulfing more than one previous candle shows the strength of the new direction.
  7. Engulfing also the shadows of the previous candle is also good news.
  8. In case of a gap, the larger the gap, the higher the likelihood of a significant reversal.

Market Sentiment:

After a downtrend, the next day, the price starts lower than the previous close but, after a short while, the buyers step in and move the price up. The late sellers start to worry, as they see their stops caught, adding more buying to the upward movement. As the price moves up, it finds a combination of profit-taking, stop-loss orders, and new buy orders. At the end of the day, this combination creates a strong rally that moves the price above the previous close.

 Fig 1- Bearish and Bullish engulfing patterns in the Bitcoin 4H  chart

The Bearish Engulfing

The Bearish engulfing pattern is the specular figure of a Bullish engulfing figure. And more so in the Forex market where assets are traded in pairs, making every move symmetrical.

The bearish engulfing forms after an upward trend. It is composed of two different-colored bodies, as in the above case. This time, though, the order is switched, and a bullish body is followed by a black candle. Also, the black body engulfs completely the body of the previous white candlestick. Sometimes that comes after the price piercing a key resistance, to then come back, creating a fake breakout.

Criteria:

  1. The uptrend is evident, even short-term.
  2. The body of the second day engulfs the body of the previous day.
  3. The body of the second candle is black, and the previous candle is a white candlestick, except for tiny bodies or dojis. In that case, the color of the first candlestick is unimportant.
  4. A large body engulfing a small body is an enhancement, as it confirms a change in the direction.
  5. A large volume on the engulfing day is also good for the efficacy of the signal.
  6. A body engulfing more than one previous candle shows the strength of the new direction.
  7. Engulfing also the shadows of the previous candle is also good news.
  8. In case of a gap, the larger the gap, the higher the likelihood of a substantial reversal.

Market sentiment:

After an uptrend, the price opens higher but, after a while, it reverses and moves below the previous open and below. Some stops trigger and add more fuel to the downside. The downward action accelerates on a combination of profit-taking, more stops hit, and new short orders. At the end of the day, the price closes below the open of the previous session, with the sellers in control. 

—- 

References:

The Candlestick Course: Steve Nison

Profitable candlestick Patterns, Stephen Bigalow

Categories
Candlestick patterns Forex Candlesticks

Candlestick Reversal Patterns I: Overview and The Piercing Pattern

Candlestick Reversal patterns: An Overview

Candlestick Reversal patterns: An Overview

Candlestick Reversal patterns: An Overview

Candlestick reversal figures are composed mainly of bu two or three candlesticks, which in combination harness the psychological power to shift the market sentiment. 

Depending on the importance of the severity of reversal, their names vary. Japanese are very visual regarding the names they gave to them. Therefore, we can almost visualize them just by its name.

In this article, we will learn the following content:

  • Overview of the reversal candlestick patterns
  • how to identify a Bullish Piercing pattern and its specular Dark Cloud Cover pattern
  •  How important engulfing patterns are and how to recognize them
  • Experience how counterattack figures lead to swift trend reversals.

The predicting power of two candle figures is sometimes astonishing. For a sample to be statistically significant, scientists need more than 20 samples for normally distributed phenomena, sometimes more. A reversal figure only shows eight data points. 2x (OHLC), and besides that traders most of the time, the reversal figure warns about a trend reversal or at least the end of the current trend.

The typical reversal pattern is a two candle figure that begins with a topping or bottoming candle followed by an opposite candle that erases partially or totally, the price action of the first one.

Piercing pattern and Dark Cloud Cover

The Piercing Pattern and the Dark Cloud Cover are specular patterns. The Piercing Pattern warns of a reversal of the bearish trend, whereas the Dark Cloud Cover heralds the end of a bullish trend.

 Candlesticks are not always good predictors, and the Piercing Pattern is a weak signal, especially if the trend has not moved too deep yet. Of course, the most oversold is the price, the better a Piercing Pattern predicts a reversal. The Dark Cloud Cover, though, is seen to show much more predicting power.

Timeframes

The Japanese used them mostly in daily and weekly timeframes. The use of these two patterns in intraday trading must be confirmed with other signals, as, for instance, the Piercing Pattern occurring after hitting a significant support or a Dark Cloud cover as a result of a strong resistance rejection. The use of short-term oscillators such as 10-period stochastics or Williams percent R in combination with these two signals will improve the likelihood of success while trading them.

Recognizing a Piercing Pattern

 

The bullish Piercing Pattern is composed of a large bearish body forming after a broad downtrend. The next candle begins below the low of the first black candle, and closes above the midway up, or even near the open if the preceding bearish candle. 

Criteria:
  1. The first candle shows a black body
  2. The second candle shows a white body
  3. The Downtrend is clear and for a long time
  4. The second day opens below the range of the previous day
  5. the second white candle closes beyond the 50% of the range of the last day.
  6. The longer the candles, the better their predicting power.
  7. If there is a gap down, the greater, the better
  8. The higher the white candle closes, the stronger the signal
  9. A large volume during these two candles is significant.

The Dark Cloud Cover

Apply the specular conditions to the Dark Cloud cover. We also should remember that trading forex pairs make both patterns fully symmetrical.

Criteria:
  1. The first candle shows a white body
  2. The second candle shows a black body
  3. The upward trend is clear and for a long time
  4. The second day opens above the range of the previous day
  5. the second black candle closes below the 50% of the range of the last day.
  6. The longer the candles, the better their predicting power.
  7. If there is a gap up, the greater, the better
  8. The lower the black candle closes, the stronger the signal
  9. A large volume during these two candles is significant.

 

Final words

lease note that the Forex and crypto markets rarely have gaps. Therefore, the condition that the second open being below the range of the first candle is almost impossible to satisfy. In this case, we rely solely on the relative size of both candlesticks and the closing above 50 percent of the range of the black candle. Of course, it is almost impossible to get gaps in intraday charts except for spikes due to sudden unexpected events.

 

References: 

The Candlestick Course: Steve Nison

Profitable candlestick Patterns, Stephen Bigalow

Categories
Forex Candlesticks

Ideas that can be Blended with Candlestick to Trigger Entries-Part4

In this article, we are going to demonstrate how a Morning Star offered us an entry. We know Morning Star is a strong bullish reversal candle, which is a combination

In this article, we are going to demonstrate how a Morning Star offered us an entry. We know Morning Star is a strong bullish reversal candle, which is a combination

In this article, we are going to demonstrate how a Morning Star offered us an entry. We know Morning Star is a strong bullish reversal candle, which is a combination of three candlesticks. There are two types of Morning Star.

  1. Morning Star
  2. Morning Doji Star

Here is how Morning Star looks like

And this is how Morning Doji Star looks like

The example we are going to demonstrate is a Morning Doji Star. Let us get started.

The price was down-trending and produced a Doji Candle on a support level where the last bearish candle closed within. Look at the very last candle. It came out as a Bullish Marubozu Candle closing above the 2nd last candle’s open. This is a typical example of Moring Star upon which buyers shall start integrating other equations to go long.

Let us have a look at those equations.

At first, we have to draw a level of resistance here. Let us draw it.

We draw the resistance line right where the candle closes. Since we do not have any down-trending Trend Line or a Double Bottom’s neckline here, thus we must wait for a trigger candle to close above the bullish candle on the trading chart.  We now have to flip over to the trigger chart. This is an H4 chart, so let’s flip over to the H1 chart to get correction/consolidation and breakout.

This is how the H1 chart looks. The first H1 candle came out as a bearish corrective candle, and the very next one closed above the bullish H4 candle’s close. A perfect trigger candle, we shall wait for. We sometimes may not get the corrective candle here. The very next H1 candle may breach the resistance line and offer us the entry.

In our previous article, we demonstrated an example of how a Bearish Engulfing Candle offered us an entry. Have you spotted out the difference between a single candlestick pattern and a combination of candlesticks pattern’s entry?

On a single candlestick entry, we had to wait for a neckline breakout (it may be trend line breakout), consolidation (on the trading chart), bearish reversal candle (on the trading chart), then the breakout (trigger chart). With Morning Star, we did not have to wait for consolidation on the trading chart. Once the combination pattern (Morning Star) was evident, we flipped over to the trigger chart; waited for a candle to make a new higher high to take an entry.

It may sound so many things to be remembered and integrated with candlesticks trading. However, once we practice and try to understand the market psychology that goes with those patterns, things will get as easy as you may like.

 

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Forex Candlesticks

Ideas that can be Blended with Candlestick to Trigger Entries – Part 2

Candlestick Patterns are widely used by traders to take entries and making money out of trading. We have come to know from Part 1 that relying on a candlestick formation

Candlestick Patterns are widely used by traders to take entries and making money out of trading. We have come to know from Part 1 that relying on a candlestick formation

Candlestick Patterns are widely used by traders to take entries and making money out of trading. We have come to know from Part 1 that relying on a candlestick formation only is not enough for a reliable entry signal. Other things need to be integrated with candlestick formation so that traders can trade accordingly. In this article, we are going to demonstrate an example of how an entry should be taken depending mainly on an engulfing candle as well as other equations that need to be maintained by traders.

Let us have a look at the chart below.

The chart above shows that the market is up-trending. At first glance, we shall look for buying opportunities here. However, look at the last candle. This is an engulfing candle which indicates that the sellers may take over. An engulfing candle is a strong sign of a trend reversal. However, we must not get carried away, but wait for other indications. In this case, we may wait for a breakout at the last swing low. Have a look at the chart.

Pay attention to the red line. This is the last swing low where the price had a bounce and moved towards the North. Then, after finding a resistance, it produced a bearish engulfing candle; kept going down on the next candle and made a breakout with a huge bearish candle. This is now an ideal chart for the sellers to look for selling opportunities. The trend starts with an engulfing bearish candle. Candlestick pattern suggests that the sellers may take over. It has. It is pretty simple, right? Not really. Just go three candles back. Look at the same chart below.

Pay attention to the arrowed candle. This is a bearish engulfing candle as well. That could have changed the trend and the price could have headed towards the South. However, that did not happen. The price kept going towards the North for three more candles then came down. Do you spot out the difference? The price did not make any downside breakout. In this case, if it had made a breakout at the nearest swing low, it might have come down from right there. Look at the chart below to get a better idea of which level I am talking about.

The drawn red level was the last swing low. If the price continued to go down and made a breakout at that level, it would have been a different ball game.

In this lesson, we have learned that Candlestick Pattern is a sign. In fact, is the first sign of a trend reversal. However, we need at least two more things to integrate with Candle Stick Pattern for taking an entry. These are:

  1. A Breakout at a significant level of support or resistance.
  2. The breakout is to have good momentum meaning the breakout candle is to be a good-looking bullish or bearish candle.

 

Stay tuned to get to know more about candlestick and integration in Part-3.

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Forex Candlesticks

Ideas that can be Blended with Candlestick to Trigger Entries-Part 1

Candlesticks are considered one of the strongest components to take an entry. However, this is not the only thing that a trader shall consider before taking an entry. An Engulfing

Candlesticks are considered one of the strongest components to take an entry. However, this is not the only thing that a trader shall consider before taking an entry. An Engulfing

Candlesticks are considered one of the strongest components to take an entry. However, this is not the only thing that a trader shall consider before taking an entry. An Engulfing Candle or a Pin Bar is a strong reversal candle. If the price is down-trending and we get a bullish engulfing candle, we may want to go long on the pair. No doubt, a bullish engulfing candle is a strong reversal candle, but there are other factors we must consider before taking an entry.

Let us find more about it from the charts below.

I have chosen a chart which was down-trending and produced a Bullish Pin Bar. The price then changed its direction and headed toward the North. Let us have a look at the chart.

The arrowed candle is one good-looking bullish Pin Bar. A Pin Bar like this attracts the buyers to go long. We see the consequence; the price headed towards the North with good buying pressure. Does this mean whenever we see a Bullish Pin Bar, we go long or vice versa? The answer is no. We must consider other factors such as Support/Resistance zone, Double Top/Bottom, Neckline Breakout, Trend Line breakout, Breakout Candle.

Let us have a look at the chart again.

See where the Pin Bar was formed. It was formed right at a zone where the price had several bounces. Ideally, this is a level where the sellers want to come out with their profit. Thus, a strong bullish reversal candle such as a Bullish Pin Bar shall attract the buyers to concentrate on the chart to go long. Now that we have found a strong support level what else to look for?

The price was down-trending by following a Trend Line. Can you spot that?

Have a look at this.

A down-trending Trend Line can be drawn. Buyers must wait for a breakout there. See the breakout candle. That was a strong bullish candle which was followed by another one. Moreover, the price came back and touched the Trend line after the breakout. Many buyers may have taken their entry there. This is not a bad idea. You may want to go long right after the second candle closes.

However, some buyers may want to go long at the neckline breakout. Have a look at the chart below.

To be very safe, some traders love to set a pending buy order and go long above the neckline level. It is a safer option for sure, but it has some disadvantages as well. We will talk about this later. Meanwhile, concentrate on what we have learned from this article.

  1. Candlestick or Candlestick pattern is to be formed at a value area.
  2. The existent trend is to be collapsed.
  3. Double Bottom or Double Top is to be evident.
  4. Breakout Candle is to be a strong commanding candle.

 

 

Categories
Forex Candlesticks

Morning Star: A Strong Bullish Reversal Candlestick Pattern

The Morning Star is a bullish reversal pattern that occurs at the bottom of a downtrend. A Morning Star is a combination of three candlesticks: The first candle shows the

The Morning Star is a bullish reversal pattern that occurs at the bottom of a downtrend. A Morning Star is a combination of three candlesticks: The first candle shows the

The Morning Star is a bullish reversal pattern that occurs at the bottom of a downtrend. A Morning Star is a combination of three candlesticks: The first candle shows the continuation of the downtrend. The second candle shows the weakness, and the third candle shows the strength of the bull.

There are two types of Morning Star:

  1. Morning Star
  2. Morning Doji Star

 

Morning Star

The Morning Star starts with a strong bearish candle followed by a gap down. The star candle may have a little bullish or bearish body. However, the third candle is to be a strong bullish candle closes at the above of the first candle’s open.

Have a look at this.

See the first candle, which is a strong bearish candle. The next candle starts with a gap closing as a little bearish candle. This one may have a small bullish body in some cases. The third candle starts with another upside gap. It is to be a strong bullish candle closing at the above of the first candles’ open. This states that the bull has taken control of the bear.

 

Morning Doji Star

 

Let us have a look at the Morning Doji Star

In this case, the star candle comes out as a Doji candlestick. The first candle comes as usual as a strong bearish candle. The third candle opens right at the support level and finishes above the first candle’s open. It states that buyers have started dominating the market.

 

In both cases, the first and third candles’ attributes are the same. The second candle varies. However, both types explain the psychology of the market, showing that the existent downtrend has come to an end, and an uptrend has been formed.

The Morning star is a visual pattern that is spotted out by the traders easily. It is the preferred pattern among all kinds of traders from price action traders to traders based on indicators.

How Traders Based on Indicators/Price Action Use the Morning Star

Traders based on indicators may use the Morning Star when it is produced at the Supply/Support zone. Moving Average, RSI, Bollinger Band, Parabolic SAR indicate Supply/ Support zone. If a Morning Star is produced at the zone that is a supply/support zone of those indicators, an entry may be triggered at the close of the third candle.

The price action traders may use horizontal, Trend Line, Fibonacci Support/Supply zone to take en entry on the Morning Star. If a Morning Star is produced at the supply/support zone of a horizontal/Trend Line/ Fibonacci levels, an entry may be triggered right after the close of the third candle.

 

 

 

 

Categories
Forex Candlesticks

Types of Bullish Candlesticks

In this article, we are going to get acquainted with some of the Bullish Candlesticks that the financial markets produce. Let’s get started.

 
Bullish Trackrail
Bullish Trackrail candlestick indicates

In this article, we are going to get acquainted with some of the Bullish Candlesticks that the financial markets produce. Let’s get started.

 
Bullish Trackrail
Bullish Trackrail candlestick indicates

In this article, we are going to get acquainted with some of the Bullish Candlesticks that the financial markets produce. Let’s get started.

 

Bullish Trackrail

Bullish Trackrail candlestick indicates that the market has been dominated strongly by the buyers. It is a combination of two candlesticks. The second candle is to be bullish and the length is very similar to the first candle. Both candles are with a long and solid body having tiny spikes or no spike at all.

Image: Bullish Trackrail

Bullish Engulfing

Bullish Engulfing Candle is formed with a combination of two candles. The second candle is to engulf and close above the first candle to be considered as a Bullish Engulfing candle. Some analysts/traders do not want to take first candle’s wick into account. However, if the second candle closes above the first candle’s wick, that is one good Bullish Engulfing Candle. A Bullish Engulfing Candle is considered as the strongest bullish reversal candle.

 

Image: Bullish Engulfing

Bullish Hammer

Bullish Hammer Candle is created when a candle closes with a small body with a long lower shadow. The body has to be tiny and it can be bullish or bearish. However, a little bullish body instead of a bearish body is more preferable among the buyers.

Image: Bullish Hammer

Spinning Top      

Spinning Top has a short body found in the middle with upper and lower wicks. The body can be bullish or bearish.

Image: Spinning Top

Bullish Pin Bar

Bullish Pin Bar is similar to Bullish Hammer. The only difference is a Bullish Pin Bar does not have any real body whereas a Bullish Hammer has a tiny body. Since a Pin Bar does not have a body, it has more rejection from the downside. Thus, Bullish Pin Bar is considered one of the most powerful bullish reversal candlesticks in the financial market.

Image: Bullish Pin Bar

Bullish Inside Bar

Bullish Inside Bar is produced with a combination of two candles. The second candle is to be bullish but shorter than the first candle. It is just the opposite of Bullish Engulfing Candlestick. A Bullish Inside Bar is considered the weakest bullish reversal candlestick.

Image: Bullish Inside Bar

Doji

A Doji Candle is formed where the price finishes very close to the same level. Thus, the candle has no body or a very tiny body. A Doji Candle itself is not a strong bullish reversal candle. However, if it is produced at a strong level of support, the market often reverses and goes towards the North.

 

 

Image: Doji

Bullish Spinning Top and Doji look very similar to the Bearish Spinning Top and Doji. The only difference between a Bullish Doji and Bearish Doji is a Bullish Doji is produced at a Support Level whereas a Bearish Doji is produced at a resistance level. The same goes for Spinning Top as well. All other bullish reversal candles’ are to be formed at a significant level of support as well. Their appearance is very different than the bearish reversal candles. Stay tuned with us to learn more about Candlestick.

 

 

Categories
Forex Candlesticks Forex Daily Topic

Three Facts about Candlesticks you Never Knew About

Candlesticks are great because it makes trends visual at first glance. But most candlestick users stay just with that trait and don’t go more in-depth.

Of course, everybody knows some

Candlesticks are great because it makes trends visual at first glance. But most candlestick users stay just with that trait and don’t go more in-depth.

Of course, everybody knows some

Candlesticks are great because it makes trends visual at first glance. But most candlestick users stay just with that trait and don’t go more in-depth.

Of course, everybody knows some candlestick patterns such as Morning and Evening Stars, Haramis, Dojis and Shooting stars, but what’ is hiding inside the candlestick?. How to extract market sentiment from its shape or pattern?

So, let’s begin!

1 – Unwrapping a Candlestick

A candlestick is condensed information of the price action within its timeframe. The corollary is that if we go to a shorter timeframe, the candlestick now is a pattern of several candlesticks.

In the chart here we see the unwrapping of a 4H candle into 30-min parts

Three Facts about Candlesticks you Never Knew About

Chart 1 – 4H Hammer Candlestick unwrapped into 30-min candles.

 

We notice that the candle has one segment dominated by sellers and the other part controlled by buyers.

Which sentiment dominates in sellers at the bottom?

  • To the first class belong those traders who could no longer hold the pain of being long and close their position.
  • The second class is made of those who came late to the trend and sold believing the trend will last forever, or quite so.

Which sentiment dominates in the way back up?

  • Late sellers realized that they were in the losing side, so they needed to close their shorts. That meant, they have to buy, adding to the bullish fuel
  • Longs that were taken out of their position see frustrated how the price moves up without them. Hence, some of them retake their longs, while others don’t dare, afraid this is going to be another bull squeeze.

2.- Impulse or correction?

There are only two stages in the market: Impulses and corrections of previous impulses. So how to spot the price is in an impulsive or corrective phase?

Three Facts about Candlesticks you Never Knew About II

Chart 2 – Candlesticks: impulses and corrections.

Impulses break resistances and move with a clear direction. Impulses are what make trends. Corrections move in ranges, lack direction, and usually retraces some or all the advances of the previous impulse.  People usually think in trends as composed by many candlesticks or bars, but we now know that a single candlestick is composed by many shorter-timeframe candlesticks. Therefore, we cannot be surprised if we state that a trend can be made of a single candlestick. That applies also to corrective movements. A corrective movement can be summarised in a single candlestick.

How to know if a candle is impulsive or corrective?

To spot an impulse look for a candlestick with a large body and almost no wicks or shadows. To spot a corrective movement look for small-bodied candles with or without wicks ( usually with wicks).  Sometimes we find both characteristics in a candlestick. That may mean it is a combination of impulse and correction. That is ok since there is no law that forbids the start of a correction or impulse in the middle of the timeframe of a candle. Sorry, the universe is not perfect!

3.- Who is in control?

Once we know facts 1 and 2, we are in the position to spot who controls the price action: buyers or sellers.

One clue is, of course how the candlestick closes, but the other clue is where are and how long are wicks. If we spot several candlesticks with large lower wicks we could reason that the buyers are pushing the price above the bottom of the candlesticks. If wicks happen on top we could deduct the opposite: Sellers selling the rally.

Three Facts about Candlesticks you Never Knew About III

Chart 3 – Candlesticks: Wicks show who controls the price action

A downward trend with a lot of lower wicks is weak. That applies to an upward trend with lots of upper wicks.  Therefore, we can detect the market sentiment by just observing the wick appearance on the candlesticks.

 

Final words

So now we know that there is much more than just fancy colors and trend visualization. We have to inspect and pay attention to body and wicks, also called shadows by Steve Nison. The information provided by a single or a group or candlesticks is worth the time spent.