You can predict the next candlestick for trend direction whether the trend is going to be bullish, or bearish.

Bullish patterns indicate that the market sentiment is positive and the price of the asset is likely to increase. Bearish patterns indicate that the market sentiment is negative and the price of the asset is likely to decrease.

You can predict the next candlestick pattern and candlestick chart along with technical indicators.

For example, you observe a hammer candlestick pattern on a candlestick chart, suggesting a bullish trend. In that case, there is a significant possibility that the next candlestick will be green or show a positive price movement.

If you want to learn intraday chart reading, go through our guide on how to read candlestick charts for day trading.

#1. Understanding Candlestick Patterns

A candlestick pattern is a single candle pattern that is used to predict the next candlestick. They are formed by the arrangement of candles on a chart and can provide valuable information about market sentiment. There are two types of candlestick patterns: bullish and bearish.

Bullish Candlestick Pattern

Bullish patterns indicate that the market is likely to move up. Some of the popular bullish candlestick patterns are

A. Hammer

The hammer is a single candlestick pattern that has a small body and a long lower wick. The hammer pattern forms when the market opens trades lower, and then rallies to close near the open. This pattern shows that the buyers have stepped in and are willing to push the price higher.

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B. Inverted Hammer

The Inverted Hammer is a single candlestick pattern that forms after a downtrend and has a small body and a long upper tail. This pattern indicates that the bulls are starting to take control of the market and could signal a potential reversal.

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C. White Marubozu (Bullish Marubozu)

The white Marubozu is a long bullish candle with no upper or lower tail, indicating that the bulls have taken control of the market and pushed the price higher. This pattern is a strong indication of a potential reversal in a downtrend.

D. Judas Candle

The Judas Candle pattern consists of a long bearish candlestick followed by a short bullish candlestick that barely reaches the midpoint of the bearish candle. The pattern resembles the shape of a cross and is also known as a “Crucifixion” pattern

Bearish Candlestick Pattern

Bearish patterns suggest that the market is likely to move down. Some of the popular bearish candlestick patterns are

A. Shooting Star

The shooting star pattern is a single candlestick pattern that has a long upper tail and a small body. The candlestick can be either bullish or bearish, but it is more reliable as a bearish reversal pattern. The pattern signals a potential reversal in an uptrend.

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B. Hanging Man

The Hanging Man pattern indicates a shift in market sentiment from bullish to bearish. It suggests that buyers were unable to maintain their control over the market, and sellers are starting to take over. You can use this pattern to make better trading decisions by either entering short positions or closing out their long positions.

C. Black Marubozu

The Black Marubozu pattern is a single candlestick pattern that is entirely bearish. The candlestick has a long red body with no upper or lower tail. The pattern signals a potential reversal in an uptrend.

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2. Identifying Candlestick Chart Types

Candlestick charts consist of more than 1 candle pattern. Each chart type provides different information about the market sentiment and can be used to predict the next candlestick. You can use identify the Japanese candlestick charts to predict the next bullish or bearish trend.

Bullish Candlestick Chart Type

A. On-Neck Pattern

The On-Neck pattern consists of two candles: a long bearish candle followed by a small bullish candle. The closing price of the bullish candle must be near the low of the bearish candle. This pattern suggests that the bears are losing control, and the bulls are starting to take over.

B. Bullish Counterattack

The Bullish Counterattack pattern is a two-candle pattern consisting of a long bearish candle followed by a long bullish candle that completely engulfs the bearish candle. This pattern is a strong indication of a potential reversal and a change in market direction.

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C. Bullish Engulfing Pattern

The Bullish Engulfing Pattern is a two-candle pattern where the second candle is a long bullish candle that completely engulfs the previous bearish candle. This pattern is a strong indication of a potential reversal and a change in market direction.

D. Bullish Harami

The Bullish Harami is a two-candle pattern consisting of a long bearish candle followed by a small bullish candle. The bullish candle must form within the body of the bearish candle. This pattern suggests that the bears are losing momentum, and the bulls are starting to take control of the market.

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E. Morning Star

The morning star is a three-candlestick pattern that signals a potential reversal. The first candlestick is a long bearish candlestick, followed by a small bullish or bearish candlestick that gaps lower, and the third candlestick is a long bullish candlestick. This pattern shows that the sellers are losing control, and the buyers are taking over.

F. Three White Soldiers

The three white soldiers are a three-candlestick pattern that indicates a potential reversal. This pattern forms when three long bullish candlesticks follow a downtrend. This pattern shows that the buyers have taken control and are pushing the price higher.

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Bearish Candlestick Chart Type

A. Bearish Harami

The bearish harami pattern consists of two candlesticks, the first of which is a large bullish candlestick. The second candlestick is a small bearish candlestick that is completely inside the range of the first candlestick. The pattern signals a potential reversal in an uptrend.

B. Bearish Engulfing Pattern

The bearish engulfing pattern is a bearish reversal pattern that consists of two candles. The first candle is usually bullish, while the second candle is bearish and engulfs the first candle. The pattern suggests that buyers have lost their momentum, and sellers are taking control.

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C. Evening Star

The evening star pattern consists of three candlesticks, the first of which is a large bullish candlestick. The second candlestick is a small-bodied candlestick, which can be bullish or bearish. The third candlestick is a large bearish candlestick. The second candlestick should have a gap up from the first and third candlesticks. The evening star pattern signals a potential reversal in an uptrend.

D. Three Black Crows

The three black crows’ pattern consists of three long bearish candlesticks, each with a lower close than the previous day. The pattern signals a potential reversal in an uptrend.

E. Three Inside Down

The three inside-down pattern consists of three candlesticks, the first of which is a large bullish candlestick. The second candlestick is a bearish candlestick that is completely inside the range of the first candlestick. The third candlestick is a bearish candlestick that closes below the low of the second candlestick. The pattern signals a potential reversal in an uptrend.

F. Bearish Pennant

The bearish pennant pattern is a continuation pattern that signals a potential reversal in an uptrend. The pattern consists of a small symmetrical triangle that forms after a sharp price movement upwards. The triangle is formed by two trend lines, one of which is a downtrend line that connects the highs, and the other is a horizontal line that connects the lows.

You would also like to read the most useful candlestick patterns in the stock market to know the rest of the important candlestick patterns.

#3. Using Technical Indicators

You can use technical indicators to predict the next candlestick by analyzing market trends and patterns. Some of the popular technical indicators used to predict the next candlestick include Moving Average, Relative Strength Index (RSI), and Bollinger Bands.

You can make better trading decisions by combining these indicators with candlestick patterns. If you find a candlestick pattern and the technical indicator show the same trend for the next candle then there is a high chance to enter into a profitable trade.

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A. Moving Average

A Moving Average (MA) is a popular technical indicator used to predict the next candlestick. It is a trend-following indicator that calculates the average price of an asset over a specific period of time. The Moving Average can help you identify trends and potential trend reversals in the market.

The Moving Average can be calculated using different time periods, such as 20, 50, or 200 days. When the price of an asset crosses above or below the Moving Average, it can indicate a potential trend reversal. For example, if the price crosses above the Moving Average, it can indicate a potential bullish trend, while a cross below the Moving Average can indicate a potential bearish trend.

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B. Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a momentum oscillator that measures the strength of price movements of an asset. The RSI can help traders identify potential overbought or oversold conditions in the market.

The RSI ranges from 0 to 100, with readings above 70 indicating an overbought condition, and readings below 30 indicating an oversold condition. When the RSI crosses above or below these levels, it can indicate a potential trend reversal. For example, if the RSI crosses above 70, it can indicate a potential bearish reversal, while a cross below 30 can indicate a potential bullish reversal.

C. Bollinger Bands

Bollinger Bands consist of a simple Moving Average and two standard deviations. The Bollinger Bands can help you identify potential volatility and trend reversals in the market.

The Bollinger Bands can be used to identify potential overbought or oversold conditions in the market. When the price of an asset crosses above or below the upper or lower Bollinger Band, it can indicate a potential trend reversal. For example, if the price crosses above the upper Bollinger Band, it can indicate a potential bearish reversal, while a cross below the lower Bollinger Band can indicate a potential bullish reversal.

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Conclusion

Candlestick patterns and technical indicators can provide valuable insights into market trends and patterns. It is important to use multiple tools and approaches to predict the next candlestick with more accuracy.

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