Top Candlestik Patterns
For stock market beginners, candlestick patterns might be familiar. Traders utilise patterns as efficient resources to navigate market moves and trends, as well as formulate strategies for informed trades. In this blog, we will describe how candlestick patterns function, which are the most optimal for novice traders, and provide an overview of first useful patterns.
Definition of Candlestick Patterns
Candlestick patterns are graphical notes of the market's change in prices over time. Every candlestick marks distinct stock activity during a certain period such as five minutes, one hour or one day. During a specific time period, every candlestick indicates the stock's price at intervals of opening, closing, highest value reached and lowest value.
The difference between the opening and closing prices is displayed by the body of the candle while the highest and lowest prices during the transaction window are depicted by the wicks, also termed as shadows.
Green candle (or white) indicates expansion by: Price increasing (bullish)
Red candle (or black) indicates contraction by: Price decreasing (bearish)
Like any other pattern, these patterns also rely on historical data. Traders are able to estimate stock prices and plan purchase decisions based on them.
Why Candlestick Patterns are Important
Investors and traders use candlestick patterns to:
Discover new purchase and sales opportunities
Analyse market trends
Analyse market participants
Make accurate entry and exit decisions
Due to their applicability, candlestick patterns are valuable to day traders, swing traders, and long-term investors.
7 Most Common Candlestick Patterns for Beginners Step by Step
Doji
Doji signifies an indecisive market because of its opening and closing price being the same or almost the same.
Hammer
It appears at the bottom of the downtrend and suggests a bullish reversal.
Shooting Star
It appears at the top of an uptrend. It indicates bearish reversal.
Bullish Engulfing
This is represented by a small red candle followed by a green candle that completely covers it.
Bearish Engulfing
One of the common bullish reversal signals is given by this pattern.
Morning Star
A three candlestick pattern which suggests that the current trend is about to change from bearish to bullish.
Evening Star
It is the opposite of the morning star candle and indicates a trend reversal from bullish to bearish.
Using candlestick patterns requires a combination of multicasting them with techniques such as RSI, Moving Averages or Volume indicators.
Patterns have to be placed within the context of a trend for them to be effective.
Test the strategies that you develop and learn using demo accounts before diving into actual trading.
Conclusion
Understanding candlestick patterns is crucial for any trader serious about stock trading. They can enhance one’s decision-making capabilities while also reducing risk. Beginners may start with simpler patterns, such as the hammer or doji, and then gradually work their way up to more advanced patterns.
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