The ONLY Candlestick Pattern Guide You'll EVER NEED

A recent trade yielded a significant 10% gain, enhancing the portfolio substantially. The key to predicting this upward movement was recognizing a specific candlestick pattern on the chart. This guide focuses on essential candlestick patterns that can be utilized daily for better trading decisions and improved market predictions.

The engulfing candlestick pattern is a powerful trading signal indicating potential reversals in market trends. A bullish engulfing candle occurs when it opens lower than the previous candle's close and closes above its open, effectively 'engulfing' the prior red candle. This pattern often appears at strong support levels, suggesting that prices may bounce back up after confirming this reversal signal with additional indicators or strategies. Conversely, a bearish engulfing candle forms at resistance points where price action slows down and indicates possible downward movement by completely enveloping the preceding green candle.

The momentum candlestick pattern signals a strong price movement, particularly effective in sideways markets. A momentum candle is characterized by its size, being two to three times larger than preceding candles. This pattern indicates that the price will likely continue in the same direction after formation due to trapped short sellers who have set stop losses near support levels. When these stops are triggered during a sudden move, it creates additional selling pressure or buying power, reinforcing the trend initiated by the breakout from choppy conditions.

The multiple candlestick pattern indicates potential price movements, particularly when three or more candles have wicks in the same direction. This pattern is most effective when combined with support and resistance levels. For instance, at a key support level where prices bounce back repeatedly, downward-wicked candles suggest sellers are attempting to break through but buyers prevail. Conversely, if there are several upward-wicked candles near resistance, it signals that the price struggles to rise further—providing an opportunity for short entries.

The doji candlestick pattern signals potential price reversals due to market uncertainty. Characterized by a thin body and wicks on both sides, it indicates indecision among traders. When observed after a strong downtrend, the appearance of a green doji suggests diminishing seller confidence and increasing buyer interest, making it an opportune entry point for trades. To confirm this reversal signal, waiting for two or more subsequent candles in the same color is advisable before entering the trade.

The Hammer candlestick pattern signals a potential price reversal. Characterized by a small body and a long upper wick, it indicates that sellers pushed the price down significantly but buyers stepped in to absorb the selling pressure, pushing prices back up. This dynamic suggests bullish sentiment following bearish activity.

The shooting star candlestick pattern is a strong bullish indicator, suggesting that the market may continue its upward trend. It resembles the hammer pattern but features a small wick on the opposite side. Traders should interpret this signal similarly to how they would with a hammer candle, indicating potential buying opportunities when observed in price action.

The Tweezer Candlestick Pattern indicates potential price reversals. It consists of a red candlestick followed by a green one, both with similar lower wicks. This pattern suggests that the price is respecting support and gaining upward momentum, making it an opportune moment to buy. Conversely, for bearish signals, look for a green candle followed by a red one with upper wicks.

The Marubozu candlestick pattern is characterized by a large candle without wicks, indicating strong market control. A bullish Marubozu appears as a big green rectangle, signaling that buyers dominate and the price will likely continue to rise. Conversely, the bearish Marubozu features a red candle with no wicks, suggesting sellers are in charge and prices may fall further. Both patterns serve as reliable indicators of ongoing trends in either direction.

To enhance trading success, memorizing candlestick patterns is beneficial but can be challenging. A practical solution involves using TradingView to automatically identify these patterns on charts. By simply selecting the desired pattern from the indicators tab, traders receive notifications when specific formations like bullish engulfing candles appear. This method simplifies spotting opportunities without needing extensive memorization and allows for tracking multiple patterns simultaneously. However, caution is advised due to potential false breakouts where price movements contradict expected outcomes based on identified patterns.