Trend Reversal Candlestick Patterns
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The most important thing while trading trading is predicting the end of a trend well before the crowd. If you can spot candlestick trend reversal patterns accurately, you can become a highly successful trader. A candlestick body is formed with the opening and closing price of the stock,security or the currency pair and the wick is formed by the high and the low price. By taking a look at the candlestick charts, you can quickly judge the mood of the market whether the bulls are prevailing or the bears are prevailing!
Now, there are many trend reversal candlestick patterns. The most popular is the Hammer. Yes, it looks like a Hammer that's why it is called a Hammer. A Hammer usually appears at the end of the downtrend. When it does appear, it should not be taken lightly. It's appearance is a signal that the trend is about to reverse itself. Hammers have extremely small bodies and long wicks or what you call shadows.
The other candlestick pattern as important as the hammer is the Hanging Man. Hammer is formed in the downtrend and the hanging man is formed in an uptrend. You will find the hanging man at the very top of the price action. This means that the uptrend is about to end and an downtrend is underway. Traders should take action accordingly.
The other important trend reversal candlestick patterns are the Bullish Engulfing Pattern and the Bearish Engulfing Pattern. A Bullish Engulfing Pattern appear at the end of a downtrend and gives the signal about the start of an uptrend. On the other hand, the Bearish Engulfing Candlestick Pattern appears at the end of an uptrend and signals that a downtrend will soon star.
In simple terms, the candlestick body engulfs the previous candlestick's body. Why is this pattern bullish? It represents a major defeat for the bears. Bullish Engulfing patterns are highly accurate but if the subsequent price trades below them than the pattern failed.
In the last decade use of candlestick patterns have become highly popular among the traders. These candlestick patterns are just a few of the many that can be used in confirming a change in the price action.
Combining technical indicators with these candlestick patterns can be very powerful.
Article Source: Articlelogy.com
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