Candlestick patterns are very important tools in an investors tool box as a single candlestick pattern can indicate the end of a trend and alert investors that action is warranted (either buying or selling).
Similar toother types of technical analysis, candlestick patterns work well on 5 minute candlestick charts, monthly candlestick charts and every length of chart in between.
Since candlestick charting originated in Japan and has been used for over 200 years there, I tend to prefer Japanese candlestick patterns rather than the "westernized" candlestick patterns that were brought back to the western world less than 30 years ago. Call me a traditionalist.
Most Japanese candlestick patterns make war references in either the name of the pattern itself or when a candlestick pattern's action is being described.I thinkthe unconventional names and war references used with Japanese candlestick patterns are pretty cool, which are all deeply rooted in Japanese history.
Let me leave you with anold Japanese proverb before you startlooking at some candlestick pattern illustrations:
"One seeing is better than a hundred hearings"
Having an in-depth knowledge of the requirements and characteristics for the bullish and bearish candlestick patterns willgive you an edge over not only other retailinvestors but also large institutions.
Large institutions know that selling a lot of their shares rapidly will drive down the share price however as a retail investor we can be more nimble than the large institutions because we typically hold fewer shares.
Candlestick patterns are extremelyuseful trading tools to help outwit these large institutions because they:
- warn investors on quick notice that a trend (uptrend or downtrend) may have ended
- are flexible and can be used in all kinds of charts- hourly, daily, weekly and monthly charts
- provide a visual perspective tohelp identify their pattern
Using candlestick patterns alone can lead to successful results, however when candlestick patterns are combined with other methods of technical analysis, they become excellent technical analysis tools with better predictive results.
For best results when using candlestick patterns, keep in mind at all times where the candlestick pattern is developing in the trend of one larger degree.
There are 2 main types of candlestick patterns, reversal candlestick patterns and continuation patterns. Reversal and continuation candlestick patterns have both bullish and bearish candlestick types.
- Reversal candlestick patterns
- Bullish
- Bearish
- Continuation candlestick patterns
- Bullish
- Bearish
Reversal Candlestick Patterns
Reversal candlestick patternsindicate that the trend is over. Whatever the trend was right before the reversal candlestick pattern, that trend is now over or close to over. The Dark Cloud Cover candlestick pattern is an example of a bearish reversal candlestick pattern. It indicated that the uptrend was over.
Some reversal candlestick patterns represent a greater probability of reversing the trend than others. The great thing about reversal candlestick patterns is that they can be used by both traders and investors alikesince they candevelop on 5 minute charts, daily charts, weekly and even monthly charts.
Bullish Reversal Candlestick Patterns
look for bullish reversal candlestick patterns at the bottomof downtrends. The downtrends can be on 5 minute charts, daily charts, weekly charts, monthly charts or anything in between.
BearishReversal Candlestick Patterns
Look for bearishreversal candlestick patterns at the topof uptrends. The uptrends can be on 5 minute charts, daily charts, weekly charts, monthly charts or anything in between.
Continuation Candlestick Patterns
Continuation candlestick patterns continue the trend that was in place before the development of the pattern. Similar to reversalcandlestick patterns, look for continuation candlestick patternson 5 minute charts, daily charts, weekly and even monthly candlestick charts.
- Bullish ContinuationCandlestick Patterns- typically look for bullish continuationcandlestick patterns in the middle of an uptrend.The uptrend can be on a 5 minute chart, a daily chart, a monthly chart or anything in between.
- There are occasions where bullish continuation candlesticks appear at either the beginning of an uptrend or near the top of anuptrend.Therefore, it is always important to keep in mind the trend of one larger degree.
- The Three White Soldiers candlestick pattern is an example of a bullish continuation candlestick pattern.
- Bearish ContinuationCandlestick Patterns- typically look for bearishcontinuationcandlestick patternsin the middle of a downtrend.The downtrend can be on a 5 minute chart, a daily chart, a monthly chart or anything in between.
- There are occasions where bearishcontinuation candlesticks appear at either the beginning of a downtrendor near the final stages of a downtrend. Therefore, it is always important to keep in mind the trend of one larger degree.
So now that you have a grasp on what some of the more common candlestick patterns look like, doyou think you are ready to "wage war" against Wall Street?
Do you currently have a 401(k) or IRA? If so, then without you even realizing it you are "waging war" against Wall Street at this very moment. Wall Street is fighting you each and every day that you stay invested withyour money because they want most of your profits if not your capital too.
It might be time to call in those"Three White Soldier" reinforcements to help you start winning a couple of battles in the candlestick war. Before you know it, your portfolio just may have turned the tides of the war in your favor! Strike a blow againstWall Street! Hoorah!
