Which Candlestick Pattern Is Most Reliable For Trend Reversal?

Candlestick charts are reliable for predicting stock price movement. Certain patterns or individual candles can indicate market trends and potential reversals.

The trend reversal in the candlestick chart can be confirmed when a pattern of various candles is formed together. However, there are few candles enough to tell the trend reversal. Identifying precise points for trend reversals is challenging. Specific candlestick formations at certain times can signal potential reversals accurately.

The candlestick charts are formed as per the sentiments of traders towards that particular stock. And series of multiple candles can give an idea about the next move in the stock, and if you use other technical indicators you can get a clearer picture of the stock market. So, in this article, we are going to talk about trend reversal patterns candlesticks and which one is more reliable.

Also Read: How to Read, Analyse& Use Candlestick Chart Patterns for Trading

What is Trend Reversal in the Stock Market?

Trend reversal in the stock market is the change in the direction of the current trend. Identifying trend reversals, transitioning from bullish to bearish, is challenging. Candlestick charts and indicators aid in recognizing these shifts.

5 Most Common Candlestick Reversal Patterns

#1 Hammer Candlestick for Trend Reversal

Hammers are one of the common trend reversal patterns in the candlestick chart. The hammer candlestick pattern often marks the end of a bearish trend or forms at a support level, signaling a potential trend reversal. It is characterized by a long lower shadow or tail, at least twice the length of the body. In an uptrend, an inverted hammer may suggest a possible reversal.

In a hammer candlestick pattern, the color of the candle doesn’t matter. It signals that bears tried to push prices lower but failed, with buyers stepping in to drive prices back up. Confirmation of a trend reversal is strengthened when subsequent candlesticks support the hammer’s signal. A strong reversal is indicated if the candle after the hammer closes above the opening price of the candlestick formed prior to the hammer.

#2 Engulfing Candlestick for Trend Reversal

When two candles are formed in which the latest one is big enough to engulf the previous one, it can give the trend reversal indication. The engulfing candlestick chart patterns can be created during the bullish as well as bearish trend.

You have to recognize the pattern at the right time, if a bearish trend is running and the engulfing candle is formed, it is the end of the bearish trend and the reversal of a trend. Similarly, when a bullish trend in the market and an engulfing candle comes, a reversal is likely.

An engulfing candlestick is the full body of a candle formed with little tails or shadows on both sides. When this candle engulfs its previous entire candle, the engulfing candle could be dark or white it doesn’t matter but it should completely engulf the body of the first black candlestick charts. And with the next candle after engulfing you can get the confirmation of trend reversal.

#3 Harami Candlestick for Trend Reversal

Harami candlestick, common for trend reversals, features two candles where the second, smaller body is within the previous candle, resembling pregnancy.

You can use the Harami for trend reversal and it can be formed in both types of trend reversal bullish and bearish. And as per the situation, it is called either a bullish harami or bearish harami candlestick chart pattern. However, you cannot rely on this individual harami candle to confirm the trend reversal you can use other technical indicators like MACD or RSI for more accurate results.

Also Read: Top 5 Best Technical Indicators for Intraday or Day Trading

#4 Piercing Line Candlestick for Trend Reversal

Piercing line candles can be also one of the most reliable trend-reversal candlestick chart patterns. A piercing line candlestick is formed with two candles the first candle is formed with a full long-body bearish candle and the second candle is also a full long-body bullish candle but formed with the open price of the stock at the gap and the close price at the middle of the bearish candle or 50% of the bearish candle.

Piercing line candlesticks show their market initiated with the bearish trend but later buyers dominant and reversed the situation and pulled the market upwards. The piercing line is the bullish trend reversal candlestick pattern that you can use in combination with other indicators.

#5 White Soldiers& Black Crows Candlesticks

“Three white soldiers” and “three black crows” are highly reliable candlestick patterns for trend reversal. Each consists of three consecutive patterns in a row. They can be used alongside strong trend reversal signals. And when these types of candles are formed back-to-back it confirms the reversal of the current trend.

Three white soldiers comprise three candles with long bodies, each opening higher than the previous one, preferably above its midpoint, indicating bullish reversal.

While on the other hand, the three black crows’ candlestick chart patterns are the reverse of the white shoulders. When a series of 3 candles with long bodies is formed and each candle has an open price below the half body of the previous candles shows the formation of three black crows’ candles. The closing price of each candle should be the new low or you can say at its lowest levels.

Three black crows signal a potential bearish trend, but careful analysis is needed as it could also confirm a bullish trend. The reliability of this candlestick pattern is very high.

Which Candlestick Pattern is Most Reliable?

Apart from this trend reversal candlestick chart patterns, there are many others like Abandoned Baby, Doji, Evening Star Morning Star etc. But all of them are not reliable or you can say can’t be used individually for trend reversal; you need to get the confirmation of reverse in the current trend with other popular technical indicators. Though, they can give signals but not enough to rely on.

The top five trend reversal candlestick patterns listed require expertise in interpretation for accurate prediction of stock price movements.

Final Words

Trend reversal candlestick patterns can be visible anytime, anywhere during the market trading hours. You need to recognize them at the right time with accurate predictions. Every candlestick is not meant to tell you the reversal of a specific trend, they can be used for both ether bullish or bearish. Their timing and place are the factors that you can use in the context of the current trend.

Certain candlesticks indicate bullish or bearish trend reversals, but relying solely on them without confirming trends can lead to errors. Here you can also combine the technical indicators to confirm.

Identifying candlestick patterns for trend reversal is crucial, but timing entry points accurately is essential for successful trading strategies. Here you can get help from the market experts, who can easily tell the entry point in the stock.