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Candle patterns

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In last chapter we studied the anatomy of a candle.
We saw it possess a body and can have wicks.

Candles patterns can help you analyse price direction.
Their indications don't always concretise in the right direction, that'd be too easy.
They are only a small aid, an assistance whom with the help of other indicators will reinforce your conviction about an incoming move.

The doji

The most famous candle pattern.
A simple doji is a candle with small to inexistent body:

Simple doji candle pattern

The upper wick represents selling pressure
The lower wick represents buying pressure

In this case both tensions have about the same strength: it represents incertitude.

The doji candle's color doesn't matter.

A low-wick doji candle pattern A upper-wick doji candle pattern

Here we have a low-wick doji. It shows a lot of buying pressure.
It's a bullish reversal pattern.

Here we have a upper-wick doji. It shows a lot of selling pressure.
It's a bearish reversal pattern.

Marubozus

A marubozu is a candle with no or very small wicks.

A bullish marubozu candle pattern A bearish marubozu candle pattern

Here we have a bullish marubozu. It shows that the buyers have been in control during the whole formation of the candle. Sellers never had a chance to create a bottom wick, nor to lower the closing price from the high.
It's a bullish pattern.

Here we have a bearish marubozu. It shows that the sellers have been in control during the whole formation of the candle. Buyers never had a chance to create a upper wick, nor to rise the price from the low, before closing.
It's a bearish pattern.

Engulfings

Those patterns are made of the association of two candles.

bullish engulfing candle pattern bearish engulfing candle pattern

Here, the red candle has been engulfed by a bigger green candle.
The former's high must be lower than the latter's close.

It's a sign of bullish reversal.

Here, the green candle has been engulfed by a bigger red candle.
The former's low must be lower than the latter's close.

It's a sign of bearish reversal.

Stars

Those patterns are made of the association of three candles.

morning star candle pattern evening star candle pattern

This pattern is called "morning star"

We see an initial downtrend.
The middle candle is a doji, representing incertitude.
The third candle break this incertitude with a clear sharp upmove.

This pattern is called "evening star"

We see an initial uptrend.
The middle candle is a doji, representing incertitude.
The third candle break this incertitude with a clear sharp downmove.

About those examples

I didn't pick idealized illustrations, because in real-life things are not perfect.
Candles are drawn by crowds and their irrational emotions. Be mind-flexible when you think of patterns.

There are many other existing candle patterns, but those ones are, according to my years trading cryptocurrencies, the most useful.

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  Types of analysisVolume