scorecardresearchFive bullish candle patterns you should know

Five bullish candle patterns you should know

Updated: 01 Jul 2022, 02:47 PM IST

Technical analysis strategies employed by traders often include the use of bullish candle patterns to identify trend reversals. Let's analyse the five most well-known bullish patterns to better comprehend these patterns.

Bullish candle patterns are a key component of traders' technical analysis tactics and are used to spot trend reversals.

Bullish candle patterns are a key component of traders' technical analysis tactics and are used to spot trend reversals.

Bullish candle patterns are a key component of traders' technical analysis tactics and are used to spot trend reversals. This reversal pattern indicates that bulls are taking control of the market and may potentially drive prices much higher, signalling the ideal opportunity to initiate a long position. A bullish candle pattern alerts traders to the market's impending upswing following a price decline.

One could become perplexed while looking at several patterns on how to spot a bullish trend. Two observations can help to reach this conclusion. First, downtrends should exhibit bullish reversal patterns. Otherwise, it's a continuation pattern rather than a bullish pattern. Second, most bullish reversal patterns call for more bullish movement. To put it another way, they must be followed by an upward price movement, which can take the form of a gap up or a lengthy hollow candlestick and be accompanied by a large trading volume. Within three days after the pattern, this indication should be visible.

Types of Bullish Candlestick Patterns

Hammer Pattern

The hammer candlestick, which may be seen near the bottom of a downtrend, suggests that the market may be about to turn bullish. When a stock begins, goes much lower throughout the day, then bounces back- close to the opening price, it forms the candlestick pattern known as a hammer. When the high and close are the same, a bullish Hammer candlestick is created, and it is regarded as a stronger pattern since the bulls were able to utterly reject the bears and drive the market further higher before the starting price.

The candlestick pattern resembles a hammer, with the opening and closing price bodies forming the head and the lengthy lower wick from the day's lows serving as the handle. The bottom wick can be considerably larger but is often twice as big as the candle body. The market probed to see where support and demand were situated, as evidenced by the extended lower shadow of the Hammer. Bulls started driving prices up toward the opening price as soon as the market discovered the support level, the day's lows. The bulls thereby resisted the negative surge downhill.

Bullish Engulfing Pattern

A bullish engulfing candlestick pattern appears near the end of a downtrend. It comprises 2 candles, the first of which has a short shadow, commonly referred to as a wick, and a comparatively tiny body. On the other hand, the second candle has longer wicks and a true body that completely engulfs the first candle's body.

When the share begins lower than the previous trading session and ends higher than the prior closing, a bullish engulfing candle is generated. Therefore, traders sell shares of stock before a bullish engulfing pattern forms because they believe that the price of the stock would decline. We observe the creation of several bearish candles under little purchasing pressure.

However, traders believe that the share is undervalued and that now is the ideal time to purchase when it is near to the support levels. The share price recovers under intense purchasing pressure and engulfs the preceding candle. The market participants are no longer supporting the negative trend, according to the bullish engulfing pattern, which also suggests that the bulls are once again in control of the market.

Piercing Line Pattern

A piercing line is a bullish reversal pattern that appears at the bottom of a downtrend. When entering a long trade or closing off a sell position, this candlestick pattern is employed as a signal. This sort of pattern develops when bulls and bears are competing for control of the price movement.

Two candlesticks make up the piercing design. The first candlestick should be a huge, red candlestick with a real body, and the second candlestick should be green and placed below the first candlestick's low point. The second candlestick must end above the centre of the first candlestick's actual body.

The piercing line candlestick pattern develops over the course of two days, with sellers dominating the first stick and buyers controlling the second. It signifies a trend's reversal and is an indication that prices will rise in the near future. Preceding the piercing line candle pattern is typically a longer-term downward price trend. It indicates that the amount of shares available for sale has reached its maximum level, and when buyers begin to take control of the market, the price of the shares progressively increases.

Morning Star Pattern

The Morning Star is a three-candlestick bullish pattern that denotes a possible bottom. It issues a caution about downtrend weakening that can eventually result in a trend reversal. Three candlesticks make up the morning star, with the central candlestick resembling a star. Long-bodied black candles that gap down on the open, short middle candles that gap up on the open, and long-bodied white candles that gap up on the open and close above the midpoint of the first candle's body make up the bullish reversal pattern.

A morning star develops over three cycles. The first is a lengthy red stick, a blatant indication that the bears are still gaining traction. The open and close prices, however, are nearly identical in the second. Buyers and sellers are suddenly cancelling each other out, making it impossible for bears to continue controlling the market. Finally, with a powerful green candlestick in the closing session, bulls seize control.

Three White Soldiers

Three white soldiers are seen as a trustworthy sign of a trend reversal. Three candles with lengthy bodies signify a trend of progressive ascent; each candle opens inside the body of the one before it, showing higher opening and shutting. It implies a significant trend shift. To completely rule out the possibility of retracement, traders must take into account the size of candles and shadows. If a candle doesn't have a shadow, it indicates that the price closed at a higher range and the bullish trend continued to be dominant.

Three White Soldiers candlesticks are used by traders in technical analysis to foretell reversals from downtrends. You can see three White Soldiers at either an uptrend or a downtrend trendline. When it occurs during an upswing, it signals waning investor's interest in stocks, which typically precedes a turn toward lower prices or even an eventual turn into a downturn. In essence, Three White Soldiers candlesticks are bullish when they emerge in rising markets and bearish when they show in declining markets.

Candlestick charts offer an additional layer of analysis on top of the fundamental research that serves as the foundation for trading choices, so investors should utilise them like any other technical analysis tool. Five of the more well-known candlestick chart patterns that suggest purchasing opportunities were examined. They can assist in spotting a shift in traders' attitudes when buyer pressure prevails over selling pressure. Despite this, the patterns do not ensure that the trend will change. Before entering a trade, investors should always verify a reversal by the subsequent price movement.

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First Published: 01 Jul 2022, 02:47 PM IST