This is a formation that signals a potential change in the price trend direction. The reversal candle patterns are created when the close of one candle is higher than the open of the next candle, and the first candle completely engulfs the body (real body) of that second candle.
The candle pattern can be bullish or bearish, depending on the direction of the price trend when the pattern forms. A bullish pattern signals that the downward price trend may be reversing, and a new uptrend may be beginning. The pattern signals that the upward price trend may be reversing, and a new downtrend may be beginning.
The size of the pattern is not as important as the direction of the price trend when the pattern forms. A large reversal pattern is more likely to follow a strong move in the opposite direction than a small reversal candle pattern.
Types of reversal candle patterns
There are many different candle patterns of this nature, but the most common are the hammer and the inverted hammer.
The hammer is a bullish pattern that forms when the close of the candle is lower than the open, but the first candle completely engulfs the candle’s body (real body). This pattern indicates that the downtrend may be reversing, and a new uptrend may be beginning.
The inverted hammer is a bearish reversal pattern that forms when the close of the candle is higher than the open, but the first candle completely engulfs the candle’s body (real body). This pattern indicates that the uptrend may be reversing, and a new downtrend may be beginning.
The other common types are the shooting star, the doji star, and the evening star.
The shooting star is a bullish pattern that forms when the candle’s body is small and the close is much higher than the open. This pattern indicates that the uptrend may be reversing, and a new downtrend may be beginning.
The doji star is a bullish or bearish pattern that forms when the candle’s body (real body) is small, and the close is almost equal to the open. This pattern indicates that the price trend may be reversing, and a new trend may be beginning.
The evening star is a pattern that forms when the candle’s body (real body) is small, and the close is lower than the open. This pattern indicates that the uptrend may be reversing and a new downtrend may be beginning.
How to trade reversal candle patterns
The candle patterns can be traded similarly to other candle patterns. When the candle pattern forms, you can enter a trade in the direction of the new trend. You can also use these patterns to help you determine when to exit a trade that is already in progress.
The best way to trade the candle patterns is to wait for confirmation from other indicators or price patterns before entering a trade. For example, if you are trading a bullish reversal candle pattern, you should wait for a bullish trend confirmation indicator to give you a buy signal before entering the trade.
The advantage of using reversal candle patterns
1) The candle patterns can be used to predict changes in the direction of the price trend.
2) These patterns are easy to identify and can be traded similarly to other candle patterns.
3)The best way to trade the candle patterns is to wait for confirmation from other indicators or price patterns before entering a trade.
4) The candle patterns can be used to help you determine when to exit a trade that is already in progress.
The disadvantages of using reversal patterns
1) The candle patterns are not as reliable as other indicators or price patterns.
2) The size of the candle pattern is not as important as the direction of the price trend when the pattern forms.
3) These patterns can be used to predict changes in the direction of the price trend, but they are not always accurate.
4) You should never enter a trade based on this pattern alone. You need to confirm the reversal with other indicators or price patterns.
5) The patterns can be used to help you determine when to exit a trade that is already in progress, but you should never rely on these patterns alone to make trading decisions.
Conclusion
The candle patterns can be used to help you predict changes in the direction of the price trend. These patterns are easy to identify and can be traded similarly to other candle patterns. The best way to trade the candle patterns is to wait for confirmation from other indicators or price patterns before entering a trade. The patterns can also be used to help you determine when to exit a trade that is already in progress. However, you should never enter a trade based on this pattern alone. You need to confirm the reversal with other indicators or price patterns.
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