Gabrielle W

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December 6, 2019

 

A Month of Candlestick and Chart Patterns

 

Technical Analysis began in Japan with candlestick charting and still works today. This is due to the consistency of human emotion, the very thing charts are visualizing for us. Recognizing the psychology of a candlestick and pattern formations are crucial to catching a breakout, seeing a reversal at the beginning of a breakdown and other key information. This month I will be going over various candlestick and chart patterns, what they indicate and how to spot them.

My recommendation is to keep visuals of candlestick and chart patterns at your desk. In time, you'll find yourself automatically spotting them when scanning a chart.

Bullish Engulfing

 

A bullish engulfing pattern is identified when a large bullish candlestick fully engulfs the smaller bearish candlestick from the period before. The second candles entirety must be greater than the entirety of the smaller bearish candle. This is a common reversal candle seen at the end of a downtrend, signifying higher prices to come. 

 

Theory

Practice

Bearish Engulfing

 

Conversely, a Bearish Engulfing Pattern exists as well, giving us the opposite probability. A bearish engulfing pattern is identified when a large bearish candlestick fully engulfs the smaller bullish candlestick from the period before. The second candles entirety must be greater than the entirety of the smaller bullish candle. This is a common reversal candle seen at the end of an uptrend, signifying lower prices to come.

 

Theory

Practice

Click here for free bullish and bearish engulfing pattern alerts. 

Flags and Pennants 

 A flag/pennant pattern is a trend continuation pattern, named after it’s visual similarity to a flag on a flagpole and pennant on a pole. It signifies a continuation of the break out or break down. Flags and pennants provide great opportunities of entry to buy or sell a pull back or relief rally.

Bullish Flags and Pennants

 

A bull flag or pennant is identified by an impulse move to the upside, followed by the flag or pennant formation(an excellent pull back entry). Afterwards, price will continue to the upside. For extra risk management, enter long when the price breaks above the top of the flag/pennant. 

 

Theory

Practice

Bearish Flags and Pennants

 

A bear flag or pennant is identified by an impulse move to the downside, followed by the flag or pennant formation(an excellent short entry). Afterwards, price will continue to the downside. For extra risk management when shorting, enter when the price breaks below the bottom of the flag/pennant. 

Theory

Practice

Interested in learning how to trade flags and pennants? Click here.