Candlestick chart: Introduction to basic patterns
“Simplicity is prerequisite for reliability”
Edsger W. Dijkstra
The great secret is the simplest one.
In today’s article we’ll teach you to prognose graph movements by simply looking at it. Do not struggle with indicators telling you different things, installing programs, robots or signals.
Candles create different shapes which predict a certain market movement. We’ll look through three basic patterns in that article.
Dragonfly and Gravestone Doji
What: identifies day’s highest or lowest points. It shows some kind of limit higher or lower of which the price should not move. Those are market turning points.
How to find: T-shaped candles with same open and close price which are located at the highest or lowest level of the candle
The falling three
What: indicates the continuation of the bearish movement.
How to find: It is formed by 5 candles. Two outer candles are bearish. Three inner candles can be bullish. The main point is those three candles do not exceed the first red candle open price. Inner candles move inside the range of the red candle without breaking out.
The rising three
Similar to the falling three pattern but indicates bullish market.
What: indicates the continuation of the bullish movement.
How to find: The pattern starts with the long green candle. Following are three red candles which are located inside the range set by the first green candle. Another long green candle closes that pattern. If you see that combination - bullish trend is continuing.
Engulfing and Engufling
A reversal pattern
What: indicates that the market is about to turn in another direction.
How to find: look for the candle to be “overshadowed” by the following one. The first candle of one color will be smaller that the second candle of another color. The bigger candle indicates the trend.
Keep on learning and developing your trading skills with your favourite broker! Train on Demo platform while we are preparing new useful tricks and strategies for the next week! Once you have mastered these patterns, switch to Real platform!