- Candlestick chart will represent the price movement of the stock for over a certain period of time.
- This type of chart is quite popular among the traders because they are easy to read and understand.
- Candlestick chart has 7 different types of forms made by a stock.
- If you wish to invest and to book big profits, then it is very necessary to know about the formation of these candlestick formations.
Bullish engulfing
- Bullish engulfing pattern is formed by 2 candlesticks.
- The first candle is a short red body that is completely engulfed by a larger green candle.
Bearish engulfing
- Bearish engulfing pattern will occur at the end of the uptrend.
- The first candle will have a small green body that is engulfed by a subsequent long red candle.
Hammer
- The hammer candlestick pattern is formed of a short body with a long lower wick and is found at the bottom of a downward trend.
- A hammer will show that although there will be selling pressure during the day, ultimately a strong buying pressure will drive the price back.
- The color of the body can vary, but the green hammer will indicate a stronger bull market than the red hammer.
Inverse hammer
- A similarly bullish pattern is the inverted hammer.
- The only difference is that the upper wick is long, while the lower wick is short.
- This will also indicate a buying pressure, which is followed by a selling pressure that was not so strong enough to drive the market price down.
- The inverse hammer will suggest that the buyers will soon have control over the market.
Standard doji
- A standard doji is a single candlestick that does not signify much on its own.
- To understand what this candlestick will mean, traders will observe the prior price action building up to the doji.
Dragonfly doji
- The dragonfly doji can appear at either the top of an uptrend or the bottom of a downtrend and will also signal the potential for a change in the direction.
- There is no line above the horizontal bar, which creates a ‘T’ shape and which signifies that the prices did not move above the opening price.
- A much extended lower wick on this doji at the bottom of a bearish move is a very bullish signal.
Gravestone doji
- This is exactly the opposite of the dragonfly doji.
- It will appear when the price action opens and closes at the lower end of the trading range.
- After the candle opens, buyers will be able to push the price up, but by the close, they will not be able to sustain the bullish momentum.
- At the top of the move to the upside, this is a bearish signal.
Conclusion
Each candlestick pattern has its own meaning, and they do provide a really important formation about the upcoming movements of the stock.
Frequently Asked Questions
Q1) What is a 5 candle rule?
This rule is a trading strategy where the traders wait for 5 consecutive candles to confirm a trend or a pattern before making any trading decision.
Q2) Which candlestick pattern is most bullish?
The bullish engulfing candlestick pattern is the most bullish.
Q3) Which candle is more accurate?
Hammer and hanging man are the most accurate.
Q4) What is the most successful trading pattern?
The head and shoulders chart is the most successful trading pattern.
Q5) Which trading will give you the most profit?
Day trading will give you the most profit.
About Us
Nifty Trading Academy is our academy where we teach you about the stock market as well as technical analysis. We also provide live trading sessions and upload blogs for the same.