Candlestick patterns

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Candlestick Patterns

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• Trading carries significant risk of losses and may not be suitable for all investors. Traders should assess these risks either themselves or in consultation with a financial advisor before investing.

• There is no guarantee that the trading techniques, methods and other information in this presentation will result in profits. The content in this presentation in only intended for educational and informational purposes and not intended as trading recommendation.

• The content of this presentation is subject to change without notice.

• Stockstream Financial Advisory Services LLP or mystockstream.com will not take any liability or accountability of losses arising from the use of information in this presentation in any manner.

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Introduction

• Extensively used in technical analysis.

• Candlestick patterns reflect the market emotions.

• Indicates changes in sentiment giving early signals of trend reversal or continuation.

• Shows the opening price, closing price, low and high made for the time period.

• Ability to look at intra-period market sentiment.


Bearish Engulfing Pattern

• Formation of this pattern in an uptrend indicates a top formation.

• Markets open above the previous close and end below the previous open.

• This pattern indicates that selling pressure has overcome buying interest.

• Trading Strategy:o Sell on formation of bearish

engulfing pattern.o Stop above the high of the bearish

candle.o Determine target using other

technical indicators.


Bullish Engulfing Pattern

• Formation of this pattern in a downtrend indicates a bottom formation.

• Markets open below the previous close and end above the previous open.

• This pattern indicates that buying pressure has overcome selling interest.

• Trading Strategy:o Buy on formation of bullish

engulfing pattern.o Stop below the low of the bullish




Dark Cloud Cover

• Formation of this pattern in an uptrend indicates a top formation.

• Markets open above the previous close and ends close to the low of the previous day.

• Greater penetration into previous days candle indicates stronger signal.

• Trading Strategy:o Sell on formation of the dark cloud

cover pattern.o Stop above the high of the bearish




Piercing Line

• Formation of this pattern in a downtrend indicates a bottom formation.

• Markets open below the previous close and ends close to the high of the previous day.

• Greater penetration into previous days candle indicates stronger signal.

• Trading Strategy:o Buy on formation of the piercing

line pattern.o Stop below the low of the bullish




Hammer

• Shows a long lower shadow and a small body. The body can be bullish (blue) or bearish (red)

• The longer the shadow and smaller the body the more bullish the pattern. A bullish body gives a stronger signal than a bearish body.

• The long shadow indicates buying interest at lower levels.

• Trading Strategy:o Buy on a bullish candle close after

the hammer.o Stop below the low of the hammer.o Determine target using other



Hanging Man

• Shows a long lower shadow and a small body. The body can be bullish (blue) or bearish (red)

• The longer the shadow and smaller the body the more bearish the pattern. A bearish (red) body gives a stronger signal than a bullish (blue) body.

• The pattern indicates that the market is having problems moving higher and selling interest is coming at higher levels.

• Trading Strategy:o Sell on a bearish candle close after the

hanging man.o Stop above the high of the hanging man.o Determine target using other technical

indicators.


Morning Star

• This is a bottom reversal pattern.

• This is a three candlestick pattern. The first candle is bearish, the second is bullish with a small body and a gap open below the close of the bearish candle. The third candle is a bullish candle confirming change in sentiment.

• Trading Strategy:o Buy on a formation of the morning

star pattern.o Stop below the low of the middle




Evening Star

• This is a top reversal pattern.

• This is a three candlestick pattern. The first candle is bullish, the second is bearish with a small body and a gap open above the close of the bullish candle. The third candle is a bearish candle confirming change in sentiment.

• Trading Strategy:o Sell on a formation of the

evening star pattern.o Stop above the high of the

middle candle.o Determine target using other



Shooting Star

• This is a top reversal pattern. It is not as strong as an evening star.

• The pattern has a long top shadow with a small body indicating selling pressure at higher levels.

• Trading Strategy:o Sell on a confirmation of the

shooting star pattern with another bearish candle.

o Stop above the high of the shooting star candle.

o Determine target using other technical indicators.


Inverted Hammer

• This is a bottom reversal pattern.

• Looks like an shooting star pattern but formed at the end of a downtrend.

• The pattern has a long top shadow with a small body indicating buying interest at lower levels.

• Trading Strategy:o Buy on a confirmation of the

inverted hammer pattern with another bullish candle.

o Stop below the low of the candle.o Determine target using other



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