THREE BLACK CROWS - Bearish Candlestick Pattern

Three Black Crows (Bearish)

Three Black Crows is a top reversal / bearish reversal formation.
It could occur at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

This pattern consists of 3 consecutive long black candlesticks that appear in an upward price trend.
The opening price of Candles 2 and 3 of the pattern should be higher than the previous day's closing price (i.e. The prices open within the previous day�s body).
And all the 3 candles should close near or at their lows, and make new lows in each day.

Since all the 3 candles should close near or at their lows, the lower shadows of the Three Black Crows formation are normally short, or even no shadow in some cases.

This pattern is formed when the prices are in overbought condition, and indicate a sign that the bulls might have lack of conviction in the current uptrend. This uptrend has now reached levels where the bears have started to short the market.
On 1st day, due to increasing selling pressure, the price closes below its opening price.
On 2nd and 3rd days, it seems that as if the price wants to regain its former strength, as the price opens higher than the previous day�s close. However, by the end of each day, the sellers would regain control, causing the price to fall to a new closing low (i.e. the price closes at lower levels than previous day�s closing price).

The Three Black Crows pattern does not occur very frequently. However, when it does occur, traders / investors should be very alert, because their appearance indicates a period of strong selling pressure, and hence the reliability of this pattern is likely to be very high. If on the 4th day the stock is not able to show strength, then lower prices may potentially continue.

The reliability of this pattern tends to increase in the following conditions:
1) Longer black candlesticks� body.
However, it should not be too long as well because if the black candlesticks are too long (over-extended), traders / investors would worry that the market could be oversold by now and hence may pause accordingly.
2) Shorter lower shadow of the candles.
3) The opening prices of the 2nd and 3rd days can be anywhere within the previous day's body. However, it is better to see the opening prices to be below the middle of the previous day's body.
4) Increase in trading volume.

Although the reliability of this pattern is likely to be very high, but it is always better to substantiate this signal with other technical indicators to confirm that the momentum is actually changing.

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THREE WHITE SOLDIERS - Bullish Candlestick Pattern

Three White Soldiers is a 3-day bottom reversal / bullish reversal formation.
It could occur at the end of a downtrend, or during a pullback within an uptrend, or at the support.

The appearance of Three White Soldiers pattern signals that higher prices are likely ahead.
This pattern is more powerful particularly when it appears after an extended decline followed by sideways movement.

Three White Soldiers pattern consists of 3 consecutive long white candlesticks that occur during a downward price trend.
The opening price of Candles 2 and 3 of the pattern should be lower than the previous day's closing price (i.e. The prices open within the previous day�s body).
And all the 3 candles should close near or at their highs, and make new highs in each day.

Since all the 3 candles should close near or at their highs, the upper shadows of the Three White Soldiers formation are normally short, or even no shadow in some cases.

This pattern is formed when the prices are in oversold condition, and indicate a sign that the bears might have lack of conviction in the current downtrend.
On 1st day, due to increasing buying pressure, the price closes above its opening price.
On 2nd and 3rd days, it seems that as if the bears want to regain controls, as the price opens lower than the previous day�s close. However, by the end of each day, the buyers� strength overcomes the earlier bears, causing the price to move up to a new closing high (i.e. the price closes at higher levels than the previous day�s closing price).

The Three White Soldiers pattern does not occur very frequently. However, when it does occur, traders / investors should be very alert, because their appearance indicates a period of strong buying pressure, and hence the reliability of this pattern is likely to be very high.

The reliability of this pattern tends to increase in the following conditions:
1) Longer white candlesticks� body.
However, it should not be too long as well because if the white candlesticks are too long (over-extended), traders / investors would worry that the market could be overbought by now and hence may pause accordingly.
2) Shorter upper shadow of the candles.
3) The opening prices of the 2nd and 3rd days can be anywhere within the previous day's body. However, it is better to see the opening prices to be above the middle of the previous day's body. The higher a candle opens compared to the prior candle, the stronger the chance of a continued reversal.
4) Increase in trading volume.

Although the reliability of this pattern is likely to be very high, but it is always better to substantiate this signal with other technical indicators to confirm that the momentum is actually changing.

To learn about other major candlestick patterns, please refer to the following:
Learning Candlestick Charts

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Trading Educational Video: BEARISH ENGULFING Candlestick Pattern

Japanese Candlestick patterns have been popular and widely used by traders. There are several major Candlestick Patterns which most technical traders should be familiar with, such as: Bullish vs. Bearish Engulfing, Harami Bullish vs. Bearish, Piercing Line vs. Dark Cloud Cover, Hammer vs. Hanging Man, Inverted Hammer vs. Shooting Star, etc.

This video shows the real current example for BEARISH ENGULFING Candlestick Pattern in the Nasdaq market. Do watch it to see the more detail analysis and why you should pay attention to this pattern when it appears in the chart.

You may want to read this previous article to find out more about Bullish & Bearish Engulfing Candlestick Pattern.

To learn about other Japanese Candlestick pattern, please refer to the following:
Learning Candlestick Charts

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Major BEARISH Candlestick Patterns � Summary

Similar to the previous post on Major Bullish Candlestick Patterns, the following pictures could also help you to differentiate between one pattern with another more easily.

For example:
Notice the difference between Evening Star, Evening Doji Star & Abandoned Baby Bearish (See pictures no 7, 8 and 9 below).








Click the following links to read about each Bearish Candlestick pattern in detail:

1) Bearish Engulfing
2) Dark Cloud Cover

3) Harami Bearish
4) Harami Cross Bearish

5) Hanging Man
6) Shooting Star

7) Evening Star
8) Evening Doji Star

9) Abandoned Baby Bearish
10) Tweezer Top

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Major BULLISH Candlestick Patterns � Summary

Previously, we have discussed several major candlestick patterns separately in details.

In this post, we summarize and re-organize the above major candlestick patterns into different grouping, which is based on the Bullishness vs. Bearishness of the patterns.

I think the following pictures could also help you to differentiate between one pattern with another more easily.
For example:
Notice the difference between Morning Star, Morning Doji Star & Abandoned Baby Bullish (See pictures no 7, 8 and 9 below).

Hope it can be useful. :)







Click the following links to read about each Bullish Candlestick pattern in detail:

1) Bullish Engulfing
2) Piercing Line

3) Harami Bullish
4) Harami Cross Bullish

5) Hammer
6) Inverted Hammer

7) Morning Star
8) Morning Doji Star

9) Abandoned Baby Bulish
10) Tweezer Bottom

To be continued to: Major Bearish Candlestick Patterns.

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TWEEZER BOTTOM VS. TWEEZER TOP

Both Tweezer Bottom & Tweezer Top are reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Tweezer Bottom) or an uptrend (Tweezer Top).

A Tweezer pattern forms when two or more candlesticks touch the same bottom / low price (for Tweezer Bottom) or the same top / high price (for Tweezer Top).
In standard technical analysis, this pattern can be comparable to the Double Bottom or Double Top.

The Tweezer can be composed of candlesticks with real bodies, shadows, and/or doji candlestick.
They also may occur on consecutive or nearby trading sessions.
When the Tweezer occurs on two consecutive trading sessions, not only would it be easier to spot, the pattern also carries higher chances of reversal.

TWEEZER BOTTOM (BULLISH)
Tweezer Bottom is a bottom reversal pattern / bullish reversal pattern.
It could be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Tweezer Bottom is formed when two or more candlesticks touch an identical bottom (low price), and then the price bounces higher.
The candlesticks can be composed of candlesticks with real bodies, shadows, and/or doji candlesticks.
For the candle�s body, the color of the body is not very important. It can be white (bullish candle) or black/red (bearish candle).

Some possibilities of Tweezer Bottom pattern:
* Two real candlestick bodies with the same low price.
* The lower shadows of two consecutive candles (e.g. two Hammers) touch an identical bottom level.
* The real body on the 1st day and the lower shadow of the following day hit the same low price.
* The lower shadow on the 1st day�s candle and the real body of the following day hit the same bottom level.



A Tweezer Bottom pattern is considered to be more significant when the two candlesticks that comprise the Tweezers pattern also form another candlestick reversal patterns.
For example:
If the two candlesticks of Harami Cross Bullish (or Harami Bullish) hit the same low price, it could be an important bullish reversal signal, as the same two candlesticks form a Tweezer Bottom as well as a Harami Cross Bullish (or Harami Bullish).

Basically, Tweezer Bottom implies that at the bottom level, bears (sellers) were not able to push the price lower. As a result, the pattern signifies a short-term support level and signals a possible turning point.
The price action immediately after the Tweezer Bottom candles should be watch carefully.
If the bottom / low price formed by the two candles is penetrated, then price is likely to decrease to at least the next important support level.
If the bottom / low price hold, then the Tweezer Bottom may provide a potential reversal signal.
A confirmation should be needed in terms of the price to continue to rise and even close higher.

TWEEZER TOP (BEARISH)
Tweezer Top is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Tweezer Top is formed when two or more candlesticks touch identical tops (high price), and then the price drops lower.
The candlesticks can be composed of real bodies, shadows, and/or dojis.

Some possibilities of Tweezer Top pattern:
* Two real candlestick bodies with the same high price.
* The upper shadows of two consecutive candles (e.g. two Shooting Stars) touch an identical top level.
* The real body on the 1st day and the upper shadow (or doji�s high) of the following day hit the same high price.
* The upper shadow (or doji�s high) on the 1st day�s candle and the real body of the following day hit the same top level.



A Tweezer Top pattern is considered to be more significant when the two candlesticks that comprise the Tweezers pattern also form another candlestick reversal patterns.
For example:
If the two candlesticks of Harami Cross Bearish (or Harami Bearish) hit the same high price, it could be an important bearish reversal signal, as the same two candlesticks form a Tweezer Top as well as a Harami Cross Bearish (or Harami Bearish).

Tweezer Top implies that at the top level, bulls (buyers) were not able to drive the price higher. As a result, the pattern signifies a short-term resistance level and signals a possible turning point.
The price action immediately after the Tweezer Top candles should be watch carefully.
If the top / high price formed by the two candles is penetrated, then price is likely to increase to at least the next important resistance level.
If the top / high price hold, then the Tweezer Top may provide a potential reversal signal.
A confirmation should be needed in terms of the price to continue to drop and even close lower.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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ABANDONED BABY BULLISH vs. BEARISH

Both Abandoned Baby Bullish & Bearish are 3-day reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Abandoned Baby Bullish) or an uptrend (Abandoned Baby Bearish).

As you may have noticed, Abandoned Baby Bullish & Bearish patterns resemble Morning Doji Star & Evening Doji Star patterns, respectively.

The main difference between Abandoned Baby Bullish / Bearish patterns and Morning / Evening Doji Star patterns are as follow:
For Abandoned Baby patterns, the shadows of the Doji on the 2nd day must completely gap below / above (or separated from) the shadows of the 1st and 3rd day candles.
In other words, there must no overlapping shadows between the Doji on the 2nd day and the 1st & 3rd day candles.



ABANDONED BABY BULLISH
Abandoned Baby Bullish is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Abandoned Baby Bullish pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing declining trend.
2) A doji that gapped down on the open below the low of the previous candle.
3) A long-body white candle that gapped up on the open above the high of the doji.

When the price is in the midst of a downtrend or a pullback within an uptrend, the long black/red candle confirms that the sellers (bears) remain strong.
Subsequently, on the 2nd day, the price gaps down sharply below the low of the previous day�s candle, providing further evidence of strong selling pressure. However, after the gap down, the decline does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that selling pressure starts to weaken and a reversal of trend could be happening soon.
On the 3rd day, the price gaps up significantly above the high of the doji and then rallies, forming a long white candle. This candle confirms the bullish reversal, particularly when accomplished by strong volume.

ABANDONED BABY BEARISH
Abandoned Baby Bearish is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Abandoned Baby Bearish pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A doji that gapped up on the open above the high of the previous candle.
3) A long-body black/red candle that gapped down on the open below the low of the doji.

When the price is in the midst of a uptrend or a bounce within an downtrend, the long white candle confirms that the buyers (bulls) are still in control.
Subsequently, on the 2nd day, the price gaps up sharply above the high of the previous day�s candle, providing further evidence of intense buying pressure. Nevertheless, after the strong gap up, the rally does not continue and the price closes at or very near to the open, forming a doji candlestick. The doji signals indecision and indicates that buying pressure begins to subside and a reversal of trend should be nearing.
On the 3rd day, the price gaps down significantly below the low of the doji and then continue to drop, forming a long black/red candle. This candle confirms the bearish reversal, particularly when accomplished by strong volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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MORNING DOJI STAR vs. EVENING DOJI STAR

Morning Doji Star & Evening Doji Star resembles Morning Star & Evening Star.
Morning & Evening Doji Star patterns can be seen as the variation of Morning & Evening Star patterns.
The main difference is that for Morning & Evening Doji Star, the 2nd candle is a Doji.

When the 2nd day candlestick is a Doji (i.e. Morning & Evening Doji Star), the chances of reversal are higher, and hence the reversal patterns are usually deemed more significant.



MORNING DOJI STAR (BULLISH)
Morning Doji Star is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Morning Doji Star pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing downtrend.
2) A Doji candlestick that gapped down on the open below the close of the previous candle.
3) A long-body white candle that gapped up on the open and closed above the midpoint (half) of the black/red body of the first day.

The selling pressure has been dominating the market for some time. The appearance of yet another long black/red candle confirms that the sellers (bears) remain strong.
On the next day (2nd day), the price gaps down below the closing price of the previous day�s candle, providing further evidence of selling pressure.
However, after the gap down, the decline ceases. The price might move only in a small range and closes at the opening level at the end of the day. As a result, a Doji forms, indicating market indecision and a potential trend reversal. The volume of the Doji�s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps up and then rallies, forming a long white candle that closes above the midpoint level the black candle on the 1st day. This confirms the bullish reversal, particularly when accompanied by a surge in volume.

EVENING DOJI STAR (BEARISH)
Evening Doji Star is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Evening Doji Star pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A Doji candlestick that gapped up on the open above the close of the previous candle.
3) A long-body black/red candle that gapped down on the open and closed below the midpoint (half) of the white body of the first day.

The market has been overwhelmed by strong buying pressure for some time. The appearance of yet another white candle confirms that the buyers (bulls) are still dominating.
On the following day (2nd day), the price gaps up above the closing price of the previous day�s candle. Nevertheless, after the gap up, the price does not continue to rally further. The price might only move in a small range and closes at the opening level at the end of the day. Consequently, a Doji is formed, signaling market indecision and a potential trend reversal. The volume of the Doji�s day should also shrink, reflecting complete market indecision.
On the 3rd day, the price gaps down and then declines, forming a long black/red candle that closes below the midpoint level the white candle on the 1st day. This confirms the bearish reversal, particularly when there is a surge in volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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MORNING STAR vs. EVENING STAR

Both Morning Star & Evening Star are 3-day reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Morning Star) or an uptrend (Evening Star).



Note:
The grey candle means the color of the candle�s body can be white or black (red).

MORNING STAR (BULLISH)
Morning Star is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Morning Star pattern consists of 3 candlesticks:
1) A long-body black/red candle, extending the existing downtrend.
2) A small candle that gapped down on the open below the close of the previous candle. The color of the small candle can be white or black/red.
3) A long-body white candle that gapped up on the open and closed above the midpoint (half) of the black/red body of the first day.

In a downtrend or during a pullback within an uptrend, the long black/red candle confirms that the sellers (bears) remain strong.
When the 2nd candle gaps down, it provides further evidence of selling pressure. However, after the gap down, the decline does not continue, or it slows significantly, and a small candle is formed. The small candle indicates the lack of ability of the sellers (bears) to continue their strength, signaling the downtrend may be weakening and a possible reversal of trend.
On the 3rd day, the price gaps up and then rallies, forming a long white candle that closes above the midpoint level the black candle on the 1st day. This confirms the bullish reversal, particularly when there is a surge in volume.

EVENING STAR (BEARISH)
Evening Star is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Evening Star pattern consists of 3 candlesticks:
1) A long-body white candle, extending the existing uptrend.
2) A small candle that gapped up on the open above the close of the previous candle. The color of the small candle can be white or black/red.
3) A long-body black/red candle that gapped down on the open and closed below the midpoint (half) of the white body of the first day.

In an uptrend or during a bounce within a downtrend, the white candle confirms that the buyers (bulls) still dominate.
When the 2nd candle gaps up, it provides more evidence of buying pressure. However, after the gap up, the rally does not continue, or it slows significantly, and a small candle is formed. The small candle indicates the lack of ability of the sellers to continue their strength, signaling the uptrend may be weakening and a potential trend reversal could be nearing.
On the 3rd day, the price gaps down and then declines, forming a long black/red candle that closes below the midpoint level the white candle on the 1st day. This confirms the bearish reversal, particularly when there is a surge in volume.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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INVERTED HAMMER vs. SHOOTING STAR

Both Inverted Hammer and Shooting Star have the same shape, i.e. candlesticks with long upper shadows and small real bodies.
The upper shadow should be at least 2 times longer than the body.
There should be no lower shadow, or a very small lower shadow.
The color of the body is not important, although a white body has slightly more bullish implications and a red / black body has slightly more bearish implications.

Inverted Hammer and Shooting Star are reversal patterns which comprised of one candle only.
Whether a pattern is bearish or bullish reversal, it depends on whether it is formed at the end of a downtrend (Inverted Hammer) or an uptrend (Shooting Star).



Note:
The grey candle means the color of the candle�s body can be white or black (red).

INVERTED HAMMER (BULLISH)
Inverted Hammer is a bottom reversal pattern / bullish reversal pattern.
It can be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

For an Inverted Hammer to form, the price must first trade much higher than where it opened, and then it drops to close near its low at the end of the day. The long upper shadow formed shows some indications that the buyers (bulls) might have started to step in. Although the sellers (bears) managed to regain control and drive the price lower at the close, the appearance of buying pressure gives some warnings.
The next trading day needs to confirm its bullish reversal signal with a strong bullish day (e.g. a gap up or a long white candle on a high volume).

SHOOTING STAR (BEARISH)
Shooting Star is a top reversal pattern / bearish reversal pattern.
I could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

When the price is in the midst of a strong rally, the price opens and then rises sharply. However, at the end of the session, the price turns and managed to close near its low. This shows some evidence that the sellers (bears) might have begun to take control.
The following day needs to confirm this with a strong bearish day (e.g. a gap down or a long black/red candle on a strong volume).

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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HAMMER vs. HANGING MAN

Both Hammer and Hanging Man have the same shape, i.e. candlesticks with long lower shadows and small real bodies.
The lower shadow should be at least 2 times longer than the body.
There should be no upper shadow, or a very small upper shadow.
The color of the body is not important, although a white body has slightly more bullish implications and a red / black body has slightly more bearish implications.

Hammer and Hanging Man are reversal patterns which comprised of one candle only.
Whether a pattern is bearish or bullish reversal, it depends on whether it is formed at the end of a downtrend (Hammer) or an uptrend (Hanging Man).



Note:
The grey candle means the color of the candle�s body can be white or black (red).

HAMMER (BULLISH)
Hammer is a bottom reversal pattern / bullish reversal pattern.
It can be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

When the price is still in the midst of a decreasing trend, the market opens and then sells off sharply. However, at the end of the session, the price turns and managed to close near its high. This shows some evidence that the bulls have begun to step in.
The following day needs to confirm the Hammer�s bullish reversal signal with a strong bullish day (e.g. a gap up or a long white candle on a high volume).

HANGING MAN (BEARISH)
Hanging Man is a top reversal pattern / bearish reversal pattern.
It may be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

For a hanging man to form, the price must first trade much lower than where it opened, and then it rallies to close near its high at the end of the day. The long lower shadow formed shows some indications that the selling pressures might just begin. Although the bulls managed to regain control and drive the price higher at the close, the appearance of selling pressure raises some concerns.
The next trading day needs to confirm the Hanging Man�s bearish signal with a strong bearish candle (e.g. a gap down or a long red / black candle on a high volume).

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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PIERCING LINE vs. DARK CLOUD COVER

Both Piercing Line & Dark Cloud Cover are 2-day reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Piercing Line) or an uptrend (Dark Cloud Cover).



PIERCING LINE (BULLISH)
Piercing Line is a bottom reversal pattern / bullish reversal pattern.
It could be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

This is a 2-candle pattern which can signal a possible turning point:
The 1st day is long black/red candle.
The 2nd day is a long white body candle that opens sharply lower, below the trading range of the previous day, but the price then rises and closes above the midpoint (50%) level of the black/red body of the 1st day candle.
If the following day the price continues to rise and close higher (preferably on a strong volume), it provides confirmation to this bullish reversal pattern.

DARK CLOUD COVER (BEARISH)
Dark Cloud Cover is a top reversal pattern / bearish reversal pattern.
It can be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

This is a 2-candle pattern which can signal a possible turning point:
The 1st day is long white candle.
The 2nd day is a long black/red body candle that opens sharply higher, above the trading range of the previous day, but the price then drops and closes below the midpoint (50%) level of the white body of the first day.
If the following day the price continues to drop and close lower (preferably on a strong volume), it provides confirmation to this bearish reversal pattern.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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HARAMI CROSS BULLISH vs. BEARISH

Harami Cross Bullish & Harami Cross Bearish resemble Harami Bullish & Harami Bearish.
Harami Cross can be seen as the variation of Harami pattern.
The difference between Harami & Harami Cross is that for Harami Cross, the 2nd candle is a Doji.

Basically, Harami Cross Bullish & Harami Cross Bearish consist of 2 candles:
The first day is characterized by a long body candle, followed by a Doji candlestick that is completely contained within the range of the previous day's body.

With the appearance of a Doji, these patterns imply market indecision, signaling a possible change of trend.
Harami Cross pattern is usually seen as having higher chances of reversal as compared to Harami pattern.



HARAMI CROSS BULLISH PATTERN
Harami Cross Bullish is a bottom reversal pattern / bullish reversal pattern.
It may be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

When the price is a declining trend for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long black/red candle).
The body of the 2nd candle is a Doji that is completely within the body of previous day's candle.

What does this pattern imply?
The market has been overwhelmed by strong selling pressure for some time. All of a sudden, the buyers (bulls) step in and open the price higher than the previous day's close.
After the strong opening, the price moves only in a small range and is contained within the previous day�s body. At the end of the day, the price closes at the opening level, forming a Doji. The Doji indicates market indecision and a potential trend reversal. The volume of the doji�s day should also dry up, reflecting complete market indecision.
A higher close on the following day (preferably with strong volume) would be needed to ascertain that the trend may be in a reversal.

HARAMI CROSS BEARISH PATTERN
Harami Cross Bearish is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

When the price has been in a rally mode for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long white candle).
The body of the 2nd candle is a doji that is within the body of previous day's candle.

What does this pattern imply?
The buying pressure has been dominating the market for some time. After a long white candle day, on the next day the sellers (bears) suddenly step in and open the price lower than the previous day's close.
After the weak opening, the price fluctuates only in a small range and is contained within the previous day�s body. Subsequently, the price closes at the opening level at the end of the day, forming a Doji. The Doji indicates market indecision and a potential trend reversal. The volume of the doji�s day should also dry up, reflecting complete market indecision.
A confirmation of the reversal on the following day in terms of a lower close (preferably with high volume) would be needed to prove that the trend may be in a reversal.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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HARAMI BULLISH vs. BEARISH

Both Harami Bullish & Bearish are reversal patterns.
Whether the pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Harami Bullish Pattern) or an uptrend (Harami Bearish Pattern).

Basically, these patterns consist of 2 candles:
The first day is characterized by a long body candle, followed by a candle whose body is completely contained within the range of the previous day's body.

These patterns imply that the momentum of preceding trend may have ceased or slowed down significantly, signaling a possibility of reversal.

Note:
Don�t confuse this pattern with the Engulfing Pattern. The candles in these patterns are actually just the opposite of the Engulfing Pattern.

HARAMI BULLISH PATTERN

Harami Bullish is a bottom reversal pattern / bullish reversal pattern.
It can be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

When the price is a declining trend for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long black/red candle).
The body of the 2nd candle is white, which opens and closes within the body of previous day's candle.

What does this pattern imply?
When the price is in the midst of a strong declining mode, the buyers (bulls) suddenly step in and open the price higher than the previous day's close.
This shocks the sellers (bears), and they start covering their short positions quickly, causing the price to rise further. However, the short-covering rally can sometimes be tempered by the late comers who see this as an opportunity to short the trend they missed the first time, and as a result, a small candle that is still within the previous day�s body could be formed.
A confirmation of the reversal on the next day in terms of a higher close (preferably with high volume) would be needed to ascertain that the trend may be in a reversal.

HARAMI BEARISH PATTERN

Harami Bearish is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

When the price has been in a rally mode for some time, a two-candle pattern forms.
The body of the 1st candle is the same color as the current trend (should be a long white candle).
The body of the 2nd candle is black/red, which opens and closes within the body of previous day's candle.

What does this pattern imply?
During an increasing price trend, after a long white candle day, the next day, the sellers (bears) suddenly step in and open the price lower than the previous day's close.
Shocked by the sudden appearance of sellers (bears) that causes some deterioration on the existing increasing trend, the buyers (bulls) become cautious and begin taking their profits by selling their long position, causing the price to drop further. However, on the other hand, some late buyers might see this as an opportunity to buy the trend missed previously. As a result, the price may stay in a small range throughout the day, forming a small candle but it�s still within the previous day's body.
A lower close on the next day would be needed to prove that the trend may be in a reversal.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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Major Candlestick Chart Patterns: BULLISH vs. BEARISH ENGULFING

Both Bullish & Bearish Engulfing are reversal patterns.
Whether a pattern is bearish or bullish reversal, it depends upon whether it appears at the end of a downtrend (Bullish Engulfing Pattern) or an uptrend (Bearish Engulfing Pattern).

Basically, these patterns consist of 2 candles:
The first day is characterized by a small body candle, followed by a candle whose body completely engulfs the previous day's body.
Shadows are not a consideration.




BULLISH ENGULFING PATTERN
Bullish Engulfing is a bottom reversal pattern / bullish reversal pattern.
It could be formed at the end of a downtrend, or during a pullback within an uptrend, or at the support.

Price has been declining for some time. Then a small black/red body occurs with low volume (1st day).
The next day (2nd day), the stock opens at new lows (below the close of the previous day�s candle) and then rises. The rise is accomplished by high volume, and finally closes above the open of the previous day, forming a long white candlestick.
In other words, the 2nd candle�s body (white candle) completely engulfs the 1st candle�s body (black/red candle).
This indicates buying pressure has overwhelmed the selling pressure, suggesting a potential reversal of trend.
If the following day the price is able to close higher, it provides confirmation to this bullish reversal pattern.

BEARISH ENGULFING PATTERN
Bearish Engulfing is a top reversal pattern / bearish reversal pattern.
It could be formed at the end of an uptrend, or during a bounce within a downtrend, or at the resistance.

Price has been in a rally for some time. Then, a small white body occurs with low volume (1st day).
The next day (2nd day), the stock opens at new highs (above the close of the previous day�s candle) and then falls. The fall is accomplished by strong volume and finally closes below the open of the previous day, forming a long black/red candlestick.
In other words, the 2nd candle�s body (black/red candle) completely engulfs the 1st candle�s body (white candle).
This indicates sellers (bears) have overwhelmed the buyers (bulls), suggesting a potential reversal of trend.
If the following day the price is able to close lower, it provides confirmation to this bearish reversal pattern.

To read about other Candlestick Patterns, go to: Learning Candlestick Charts.

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Learning / Understanding Candlestick Charts

Previously, we�ve covered some basics on candlestick charts reading & candlestick formations. In the next posts, we�ll continue to discuss some major candlestick chart patterns.
Before that, as usual, to be more organized, I�d like to put the links of all posts on this topic below, and place the link to this post on the top left corner for easier future reference.

Click the following links to read each of the posts:

1) How To Read Candlestick Chart � The Basic

2) Understanding Candlestick Formation:

a) Part 1: Long & Short Candles
b) Part 2: Long Shadows, Hammer / Inverted Hammer, Spinning Tops
c) Part 3: Doji, Long-legged Doji
d) Part 4: Dragonfly Doji, Gravestone Doji

3) Major Candlestick Patterns:

a) Bullish vs. Bearish Engulfing

b) Harami Bullish vs. Bearish
c) Harami Cross Bullish vs. Bearish

d) Piercing Line vs. Dark Cloud Cover

e) Hammer vs. Hanging Man
f) Inverted Hammer vs. Shooting Star

g) Morning Star vs. Evening Star
h) Morning Doji Star vs. Evening Doji Star
i) Abandoned Baby Bulish vs. Bearish

j) Tweezer Bottom vs. Tweezer Top

4) Summary:

a) Major BULLISH Candlestick Patterns
b) Major BEARISH Candlestick Patterns

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Understanding Candlestick Formation � Part 4: DRAGONFLY DOJI & GRAVESTONE DOJI

The following are some form of Doji candlestick (Cont�d):
(Please refer back to Part 3 for the pictures of each of the following formation)

3) Dragonfly Doji
Dragonfly doji is formed when the Opening and Closing price are at the High of the session (i.e. Open = Close = High) and the Low price creates a long lower shadow, resulting in a candlestick with a long lower shadow and no upper shadow (Looks like a "T").
Dragonfly doji indicates that sellers dominated trading and pushed the price lower in the beginning of session. However, towards the end of the session, buyers reemerge and drove the price back to the opening level and the session high. This signals a potential trend reversal.

Dragonfly doji may imply a trend reversal depending on previous trend and future confirmation.

After a downtrend, or during a pullback within an uptrend, or when it�s formed at the support, the appearance of Dragonfly Doji could signal that a turning point is nearing (i.e. potential bullish reversal).
Because when the price has been in a declining mode for some time, the ability of the price actions to rally back to its highest level after the sell-off at the beginning of session shows some evidence that the bulls (buyers) might just have begun to step in again.
The following day needs to confirm its bullish reversal signal with a strong bullish day (e.g. a gap up or a long white candle on a high volume).

After an uptrend, or a bounce within a downtrend, or when it�s formed at the resistance, the appearance of Dragonfly Doji could signal that a turning point is nearing (i.e. potential bearish reversal).
For a Dragonfly Doji to appear, the price must first trade much lower than where it opened, and then it rises to close at its high point at the end of the day. The long lower shadow formed shows some indications that the selling pressures might have just begun. Although the bulls managed to regain control and drove the price back to its highest level at the close, the appearance of selling pressure suggests some signs of caution. The next trading day needs to confirm its bearish signal with a strong bearish candle (e.g. a gap down or a long black/red candle on a high volume).

4) Gravestone Doji
Gravestone doji is just the opposite of Dragonfly doji.
Gravestone doji is formed when the Opening and Closing price are at the Low of the session (i.e. Open = Close = Low) and the High price creates a long upper shadow, resulting in a candlestick with a long upper shadow and no lower shadow (Looks like an upside down "T").
Gravestone doji indicates that buyers dominated trading and pushed the price higher since the beginning of session. However, towards the end of the session, sellers resurfaced and drove the price back to the opening level and the session low. This signals a potential trend reversal.

Gravestone doji may imply a trend reversal depending on previous trend and future confirmation.

After a downtrend, or a pullback within an uptrend, or when it�s formed at the support, the appearance of Gravestone Doji could signal that a turning point is nearing (i.e. potential bullish reversal).
Because for a Gravestone Doji to form, the price must first trade much higher than where it opened, and then it drops to close at its low at the end of the day. The long upper shadow formed shows some indications that the buyers (bulls) might just have started to step in. Although the sellers (bears) managed to regain control and push the price back at its lowest level at the close, the appearance of buying pressure raises some concerns.
The next trading day needs to confirm its bullish reversal signal with a strong bullish day (e.g. a gap up or a long white candle on a high volume).

After an uptrend, or a bounce within a downtrend, or when it�s formed at the resistance, the appearance of Gravestone Doji could signal that a turning point is nearing (i.e. potential bearish reversal).
Because when the price is has been in a rally mode for some time, the ability of the price actions to drop back to the lowest point after the rally in the beginning of session demonstrates some indications that the sellers (bears) might have begun to step in again.
The following day needs to confirm its bearish reversal signal with a strong bearish day (e.g. a gap down or a long black/red candle on a high volume).

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Understanding Candlestick Formation � Part 3: DOJI & LONG-LEGGED DOJI

Apart from the major candlestick formation discussed in Part 1 & Part 2, there is one more candlestick formation that is important in candlestick chart analysis: �Doji�.

The following are some forms of Doji candlestick:



1) Doji
Basically, Doji is formed when the opening and closing prices are virtually equal. (The open and close ideally should be equal, but not necessarily). The length of the upper and lower shadows can vary. Hence, some doji can look like plus sign, a cross, or inverted cross.

Doji represents indecision or tug-of-war between buyers and sellers. The stock was trading higher and lower than the opening level during the session, but closed at or very near to the opening. That means neither buyers nor sellers could gain control, signaling indecision and that a turning point from the existing trend could be nearing.

Doji by itself is a neutral pattern. Doji could provide a reversal signal in relation to the preceding trend and future price confirmation.
Hence, when a doji forms on the chart, pay attention to the preceding candlesticks / trend:

When a doji appears after an uptrend (e.g. a series of candlesticks with long white bodies) or when a doji forms at the resistance, it signals that the buying pressure is starting to diminish, and the uptrend could be nearing to an end. Because in order for price to continue rising, more buyers are needed. The appearance of doji in this case implies the lack of new buyers. Even after the doji forms, further downside is required for bearish confirmation.

In contrast, when a doji appears after a downtrend (e.g. a series of candlesticks with long red/black bodies) or when a doji forms at the support, it signals that selling pressure is starting to weaken, and the downtrend could be nearing to an end. Even after the doji forms, further upside is required for bullish confirmation.

However, if many dojis are observed in a chart, the appearance of a new doji will not carry too much weight in signaling a reversal.

2) Long-Legged Doji
Long-legged doji have long upper and lower shadows that are almost equal in length.
These doji indicate that prices moved considerably above and below the open during the session, but closed at or very near to the opening price, reflecting a great amount of indecision in the market and that a change of trend could be nearing.
Similarly, this kind of dojis also may signal a reversal depending upon the preceding trend and further price confirmation, as discussed above.

Continue to Part 4.

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Understanding Candlestick Formation � Part 2: LONG SHADOWS, HAMMER / INVERTED HAMMER & SPINNING TOP

The following are some common & important candlestick formation (Cont�d):
(Please refer back to Part 1 for the pictures of each of the following formation)

3) Long Shadows
Upper shadows of a candle represent the session high, whereas lower shadows represent the session low.

Candles with a long upper shadow and short lower shadow (the 1st candle in Picture 3) imply that buyers at first dominated at the beginning of the session and push the price higher from the opening. However, towards the end of the session, sellers became more aggressive and forced the price down from their highs, creating a weak close near the opening.

Candles with a short upper shadow and long lower shadow (the 2nd candle in Picture 3) imply that sellers dominated at the beginning of the session and push the price lower from the opening. However, by the end of the session, buyers came and got more aggressive and drove the price up from their lows, creating a strong close near the opening.

4) Hammer / Inverted Hammer
The 1st candle in Picture 4 is actually another form of Long Shadows candle with special characteristics of long lower shadow, no upper shadow, and small or no body (The shadow has the multiple length of the body).
This kind of candle can form �Hammer� (a bullish pattern during a downtrend) or �Hanging Man� (bearish pattern during an uptrend) depending on the pattern preceding it (uptrend or downtrend).

The 2nd candle in Picture 4 has long upper shadow, no lower shadow, and small or no body (The shadow also has the multiple length of the body).
This kind of candle can form �Inverted Hammer� (a bullish pattern during a downtrend) or �Shooting Star� (bearish pattern during an uptrend) depending on the preceding pattern (uptrend or downtrend).

The above patterns are discussed further in the following:
* Hammer vs. Hanging Man
* Inverted Hammer vs. Shooting Star

5) Spinning Top
Spinning Top is a candle that has small body with upper and lower shadows that exceed the length of the body. Spinning Top signals indecision.
The small body (whether hollow or filled) indicates little movement from opening to closing, and the shadows suggest that both bulls (buyers) and bears (sellers) were active during the session.
Although prices moved significantly above & below the opening during the session, at the end the session closed near to the opening. That means neither buyers nor sellers could gain control, signaling indecision.

Continue to Part 3: Doji.

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Understanding Candlestick Formation � Part 1: LONG CANDLES & SHORT CANDLES

One of the reasons why candlestick chart gain popularity among traders is because its formation can provide visual analysis of other traders� sentiments. Hence, in candlestick chart reading, it�s important to understand what the candlestick formations imply.
The following are some common & important candlestick formations:




1) Long Candles / Wide Range Candles
A long candle represents a large price move from open to close. Basically, the length of a candle body indicates the intensity of buying or selling pressure. The longer the body is, the more intense the buying or selling pressure. Long candles with high volumes normally imply high volatility or high interest in the stock.

Long white candles show strong buying pressure. It means that buyers were aggressive and hence pushed the price up significantly from open to close.

Long red / black candles show strong selling pressure. It means that sellers were aggressive and hence pushed the price down considerably from open to close.

2) Short Candles / Narrow Range Candles
Short candles indicate small price movement (from open to close) and represent consolidation. Short candles with low volumes usually also imply low volatility or little interest in the stock,

This kind of low volatility period may lead to good trading opportunities. Because low volatility leads to high volatility, and high volatility leads to low volatility. Hence, a breakout / breakdown after a period of low volatility usually could result in an aggressive movement & strong momentum.

Continue to Part 2.

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