- Candlestick patterns act as signals of future changes in trends and the existing trends of financial markets.
- Techniques such as Bullish Engulfing and Three White Soldiers point to increasing demand and potential upmove.
- It should however be noted that candlestick patterns should be used alongside other analysis tools to give more reliable signals.
These patterns play significant roles in technical analysis for traders who wish to understand the trend of the market as well as the possible future movement of the price. This article seeks to discuss five popular candlestick patterns that most people consider to be bullish patterns in the markets.
The Hammer and Inverted Hammer: Resilience in Downtrends
The Hammer and Inverted Hammer patterns are normally formed at the end of a downtrend so there may be a reversal. These are called single-candle formations that have long lower shadows low bars or small bodies suggesting that the buyers have come back after aggressive selling.
The Bullish Engulfing: Overwhelming Buying Pressure
A Bullish Engulfing pattern consists of two candles: a ‘’small’’ bearish candle accompanied by a larger bullish candle that fully engulfs the prior day’s trading range. This formation usually indicates a significant change of trend from bearish to bullish which is usually an indication of an upper trend.
The Piercing Line: A Glimmer of Bullish Hope
The Piercing Line pattern emerges in downtrends and comprises two candles: a bearish candle is followed by a bullish one that closes above the middle of the range of the previous candle. This pattern can be interpreted as buying pressure increasing beyond selling pressure, potentially signifying a reversal of trends.
The Morning Star: Dawn of a New Uptrend
The Morning Star is comprised of three candles that appear at the end of bear trends and is also considered a three-candle pattern. It comprises a large bearish candle, a candle with a small real body that could be a Doji, and a large bullish candle. This pattern entails a shift from bearish pressures to bullish forces which could be an indication of a shift to the upside.
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The Three White Soldiers: Marching Towards Higher Prices
The Three White Soldiers pattern consists of three bullish long-bodied candles, whose real bodies should open to the right of the previous candle’s real body and close near the top. Such formation points to strong buying pressure and commonly gives a signal that an uptrend is either ongoing or has started.
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