Candlestick patterns are a popular tool used by traders in the stock market, including those engaged in intraday trading. These patterns are formed by the price movements of a stock or asset over a specific time period, often depicted in candlestick charts. Candlestick patterns provide traders with valuable information about market sentiment and potential future price movements.
Here are some common candlestick patterns used in intraday trading:
- Doji: A Doji forms when the opening and closing prices are very close to each other, creating a small or nearly non-existent body of the candle. Dojis suggest indecision in the market and can signal potential reversals.
- Bullish Engulfing: This pattern occurs when a small bearish candle is followed by a larger bullish candle that completely engulfs the previous one. It’s seen as a bullish reversal signal.
- Bearish Engulfing: The opposite of the bullish engulfing, it happens when a small bullish candle is followed by a larger bearish candle that engulfs the previous one. It’s seen as a bearish reversal signal.
- Hammer: A hammer pattern forms when the price moves significantly lower during the trading session but then rallies to close near or above its opening price. It can signal a potential bullish reversal.
- Shooting Star: This pattern is the reverse of the hammer and occurs when the price moves significantly higher during the session but then closes near or below its opening price. It’s considered a potential bearish reversal signal.
- Morning Star: This is a bullish reversal pattern that consists of three candles. It starts with a bearish candle, followed by a small candle (Doji or spinning top) that shows indecision, and then a strong bullish candle.
- Evening Star: The opposite of the morning star, this is a bearish reversal pattern also consisting of three candles. It starts with a bullish candle, followed by a small candle indicating uncertainty, and then a strong bearish candle.
- Harami: A harami pattern occurs when a small candle (the baby) is completely engulfed by the previous candle (the mother). It can signal a potential reversal, either bullish or bearish.
- Marubozu: A marubozu candle has no or very small wicks and represents a strong buying or selling sentiment. A white (or green) marubozu is bullish, while a black (or red) marubozu is bearish.
- Three White Soldiers: This bullish pattern consists of three consecutive long green candles with higher closes, indicating strong buying pressure.
- Three Black Crows: The opposite of the three white soldiers, this bearish pattern consists of three consecutive long red candles with lower closes, signaling strong selling pressure.
It’s important to note that while candlestick patterns can provide valuable insights, they should be used in conjunction with other technical and fundamental analysis tools to make well-informed trading decisions. Additionally, traders should be aware of false signals and market conditions before placing trades based on candlestick patterns.
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