16 Candlestick Patterns Every Trader Should Know IG South Africa

The alignment of the wicks and the failure to sustain higher prices signal 16 candlestick patterns a potential shift in momentum, indicating that a downtrend could be on the horizon. Similar to the inverse hammer pattern discussed earlier, the shooting star reflects a scenario where sellers push back against an initial upward movement. This pattern appears at the peak of an uptrend, suggesting that the momentum may shift and a reversal to a downtrend could be imminent.

• It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication.
• It features a small real body near the bottom and a long upper wick, indicating that buyers pushed prices up, but sellers regained control by the close.
• CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage.
• I hunt pips each day in the charts with price action technical analysis and indicators.

Understanding What Each Signal Actually Means​

A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars. Candlestick patterns are used to predict the future direction of price movement. Discover 16 of the most common candlestick patterns and how you can use them to identify trading opportunities.

A hammer shows that although there were selling pressures during the day, ultimately a strong buying pressure drove the price back up. The colour of the body can vary, but green hammers indicate a stronger bullish signal than red hammers. Candlesticks patterns can be used to identify patterns and trends in price movements, which can help traders make informed decisions about buying and selling assets. Now that we’ve covered the six most common bullish candlestick patterns, let’s explore the six bearish candlestick patterns. These patterns can signal a potential reversal when the market is in an uptrend. The hammer candlestick has a short body and a long lower wick, with little-to-no upper wick, making it look like a hammer.

Sign in to view more content

While this candlestick pattern tool is powerful on its own, combining it with complementary indicators can significantly improve your success rate. For instance, a Hammer pattern at a key support level, combined with oversold RSI conditions, creates a much stronger setup than any single signal alone. This time a smaller green candle is engulfed by a larger red one – signifying a strong move lower.

How to Automatically Spot 16 Candlestick Patterns on TradingView (Without Missing a Single One)

• At that point, they would look for a reversal signal of the prevailing trend.
• You should familiarise yourself with these risks before trading on margin.
• Bullish candlestick patterns could indicate that a market could be about to rally.

The first candle is red, the second a spinning top or a doji, and the third is green. Traditionally the ’star‘ should gap lower on entry and then gap higher on exit into the third candle. However, 24-hour markets typically have few gaps so traders tend to ignore this requirement. A similarly bullish candle which when seen in a downtrend can signal that the market is about to move higher.

This pattern features three strong bullish candles forming consecutively, each closing higher than the last. It represents sustained buying momentum and is considered one of the more reliable bullish candlestick patterns. The following candlestick patterns are known as continuation patterns. Unlike reversal patterns, these do not signal a change in market direction but can help traders identify periods of consolidation or indecision. This consists of three consecutive green candles (so, three days) with short wicks that open and close progressively higher than the previous day’s candle. It’s an extremely strong bullish signal occurring after a downtrend, showing a steady advance of buying pressure.