Candlestick patterns - Swing Trading Options
I don’t think I can boil it down to one single pattern that is the best. But I did decide to take my top 5 and write about them here. The good news is this is actually 10 patterns because each of these has both a bullish and a bearish variation!
For the same reasons as you find with the Doji patterns, these three show that either buyers or sellers tried to gain the upper hand, and then were overwhelmed, and a trend reversal follows.
Here are five candlestick patterns that perform exceptionally well as precursors of price direction and momentum . Each works within the context of surrounding price bars in predicting higher or lower prices. They are also time sensitive in two ways. First, they only work within the limitations of the chart being reviewed, whether intraday , daily, weekly or monthly. Second, their potency decreases rapidly three to five bars after the pattern has completed.
To be considered a bullish reversal, there should be an existing downtrend to reverse. A bullish engulfing at new highs can hardly be considered a bullish reversal pattern. Such formations would indicate continued buying pressure and could be considered a continuation pattern. In the Ciena example below, the pattern in the red oval looks like a bullish engulfing, but formed near resistance after about a 30 point advance. The pattern does show strength, but is more likely a continuation at this point than a reversal pattern.
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Japanese Candlestick Trading Patterns on Forex Charts show the same information as bar charts but in a graphical format that provides a more detailed and ...
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Shown are the top ten performing candlestick patterns, based on performance of those that act as continuations of the prevailing price trend in a bull market.
If we group these candlestick patterns and plot them on to a stock chart, we will get a chart like the following.
The above candlestick chart is a stock chart for MGM. As you can see, the length for each candlestick pattern is different because the stock prices are different for each day. The above stock chart is a daily chart for MGM, but you can apply candlestick chart to any time frame.
So the candlestick looks like an inverted cross, a simple cross, or plus sign. The doji conveys an even struggle between the forces of the market, both side pushing with no net gain is achieved. The doji can be both a reversal pattern and a continuation pattern.
Let’s think about price movements like a war between bulls and bears. Every candlestick is a single battle in an overall war and the 5 elements of the candlestick tell us who is ahead, who is pulling back, who is in control and who has a better chance of winning the next battle.
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The bullish reversal patterns can further be confirmed through other means of traditional technical analysis—like trend lines, momentum oscillators , or volume indicators—to reaffirm buying pressure. ( For insight into ancillary technical indicators see Basics of Technical Analysis ) There are great many candlestick patterns that indicate an opportunity to buy. We will focus on five bullish candlestick patterns that give the strongest reversal signal.
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