Candlestick patterns. Part 1. (ENG).

Candlestick Pattern "Doji" — one of the most famous and significant patterns in technical analysis, especially in the Forex market. It symbolizes uncertainty or hesitation in the market and often precedes a trend change.

Features of the Doji Pattern

• Structure: The Doji candle is characterized by its opening and closing prices being approximately at the same level, creating a very small or almost invisible body. The Doji candle can have shadows of varying lengths.

Types of Doji:

• Standard Doji: A small body with shadows on both sides.
• Long-Legged Doji: With long shadows above and below, indicating greater uncertainty and volatility.
• Gravestone Doji: A long upper shadow and almost no lower shadow.
• Dragonfly Doji: A long lower shadow and no upper shadow.

Significance:

• The Doji is not strictly a bullish or bearish signal but rather indicates indecision among market participants.
• When a Doji appears after a prolonged trend (up or down), it may signify a potential trend reversal.
• It is important to consider the preceding trend and subsequent candles to confirm the signal given by the Doji.

Use in Trading:

• The Doji often requires confirmation from subsequent candles for a valid reversal signal.
• Traders may use the Doji in combination with other indicators or analysis of support and resistance levels to increase the accuracy of their predictions.

Market Psychology:

• The appearance of a Doji reflects a struggle between buyers and sellers, but without a clear winner in that period.
• This may indicate the fatigue of the current trend or the beginning of fluctuations before establishing a new price movement direction.

"Hammer" Pattern is a key pattern in candlestick analysis, often indicating a potential reversal of a downtrend. This pattern is widely used in technical analysis, including in the Forex market.

Features of the Hammer Pattern

• Appearance:
• The Hammer is characterized by a small body at the top and a long lower shadow.
• The length of the lower shadow is typically at least twice the size of the body.
• The upper shadow is absent or very short.
• The body's color can be bearish (black or red) or bullish (white or green), but a bullish Hammer is considered more reliable.

Trading Significance:

• The Hammer usually appears at the end of a downtrend.
• The candle indicates that after opening, prices fell but the market managed to raise them back to near the opening levels.
• This is perceived as a signal of potential exhaustion of the downtrend and a possible upward reversal.

Confirmation:

• Subsequent confirmation is important. Traders usually wait for the next candle or even several candles to confirm the reversal signal.
• The confirming candle should close above the body of the Hammer.

Context and Caution:

• The importance of the Hammer increases if it appears at support levels or after a significant downtrend.
• Single candle patterns are not always reliable, so it is advisable to use them in conjunction with other indicators and analysis methods.

Market Psychology:

• The appearance of the Hammer reflects a change in market sentiment. Starting negatively, buyers push the price back to the opening level by the end of the period, creating optimism regarding future price movements.

A similar bullish pattern is the inverted hammer. The only difference is that the upper wick is long and the lower wick is short.

This indicates buying pressure followed by selling pressure that was not strong enough to bring down the market price. The inverted hammer suggests that buyers will soon gain control of the market.

The "Hanging Man" Pattern is a candlestick pattern in technical analysis, often seen as a harbinger of a reversal in an upward trend. It shares many similarities with the "Hammer" pattern but appears in opposite market conditions.

Features of the Hanging Man Pattern

• Appearance:
• The Hanging Man has a small body at the top of the candle, a long lower shadow, and a short or non-existent upper shadow.
• The length of the lower shadow is typically at least twice the size of the body.
• The body's color can be either bullish or bearish, but a bearish color is considered more significant.

Trading Significance:

• The Hanging Man appears at the end of an upward trend.
• This pattern indicates that despite the sellers' pressure, which led to a price drop during the session, buyers could not keep the price from falling back to the opening level.
• This may point to bull fatigue and potential exhaustion of the upward trend.

Confirmation:

• Similar to the Hammer, the Hanging Man requires confirmation through subsequent candles, which should close below the body of the Hanging Man.
• It is necessary to consider the overall market context and additional indicators.

Market Psychology:

• The emergence of the Hanging Man reflects uncertainty and potential changes in market sentiment.
• Despite initial growth, pressure from sellers causes concern among market participants.

Caution in Trading:

• It is important not to rush to conclusions and wait for a confirming signal before making a decision to sell.
• The Hanging Man alone does not guarantee a trend reversal.

The "Bullish Engulfing" Pattern is one of the key candlestick patterns used in technical analysis to identify a potential reversal from a downward to an upward trend. This pattern emerges at the end of a downtrend and may indicate a shift in market sentiment from bearish to bullish.

Features of the Bullish Engulfing Pattern

• Structure:
• The pattern consists of two candles: the first candle is bearish, the second is bullish.
• The bullish candle "engulfs" the bearish one, meaning the body of the second candle completely covers or overlaps the body of the first.

Market Significance:

• The appearance of this pattern at the end of a downtrend is considered a signal for a potential trend reversal.
• It suggests that buyers have taken control of the market, overcoming the sellers' pressure.

Confirmation:

• For increased reliability of the pattern, confirmation is needed, often in the form of further price increases in subsequent candles.
• Without confirmation, the risks of a false signal increase.

Context:

• The pattern should be considered in the context of the preceding trend. It is most significant after a notable downward movement.

Perception Features:

• The first bearish candle reflects the continuing pressure of sellers, while the second bullish candle shows a strong surge by buyers capable of completely turning the situation around.

The "Bearish Engulfing" Pattern is a significant candlestick pattern in technical analysis that signals a potential reversal from an upward to a downward trend. This pattern typically appears at the peak of an upward movement and is considered a strong bearish signal.

Features of the Bearish Engulfing Pattern

• Structure:
• The pattern consists of two candles: the first candle is bullish, the second is bearish.
• The bearish candle "engulfs" the bullish one, meaning the body of the second candle completely covers or overlaps the body of the first.

Market Significance:

• The appearance of this pattern at the top of an upward trend may indicate that sellers have taken control over the market, overcoming the buyers' pressure.
• It is usually regarded as a strong signal for a potential trend reversal.

Confirmation:

• To enhance the reliability of the pattern, confirmation is required, often in the form of further price declines in subsequent candles.
• The absence of confirmation can indicate a false signal.

Context:

• Bearish Engulfing is most significant when it appears after a noticeable upward trend.

Market Psychology:

• The first bullish candle reflects the confidence of buyers, while the second bearish candle shows strong selling pressure capable of changing the trend direction.

by Fox Forex🦊