A bullish candlestick pattern is formed when the opening price of a security’s trading session is higher than its closing price. The candlestick body shows that buyers pushed up prices during most or all of the day, with demand outweighing sellers.
This leads to an increase in share prices for the company. Investors can use these five powerful bullish patterns to help their investment decisions and potentially grow their portfolios.
Bearish Vs. Bullish: What’s The Difference?
When the market’s overall sentiment is bullish, traders are more optimistic that prices will increase further. Conversely, when the prevailing opinion amongst traders is bearish, they expect lower prices. Bullish and bearish are often used to describe trends in securities trading.
Today, we’ll be looking at bearish candlestick patterns. To capitalize on these market trends, use these five bearish candlestick patterns to make the most of your investment decisions.
A hammer is a candlestick pattern that consists of a small body, little or no upper shadow, and a long lower shadow. The candle’s close should be near the low end of its trading range, showing that buyers could push prices higher despite selling pressure.
While this bullish candle confirms market support, it signals the possibility of a potential trend reversal during the next session.
A hammer appears in an uptrend and signals that buyers are losing their footing. The long lower shadow indicates exhaustion among buyers, while the small body confirms the decline in prices. It’s important to note that this candle does not have to be at the top of the trend. In downtrends, a hammer can quickly appear as an inverted hammer or a shooting star.
The Morning Star
A morning star appears in a downtrend and has three candlesticks: a long black body indicating a definite downward trend during the session. The next candle gapped down from the open but closed near its high point.
The third day gaps up from its low and closes at or above the midpoint of the previous black candle. The resulting pattern begins to trend upward, suggesting the potential reversal of a downtrend.
A Doji is formed when the open and close are virtually equal, creating a horizontal line for the candlestick’s body or natural body essentially.
The length of this candle’s shadow indicates whether it appears in an uptrend or downtrend. If the natural body is long and upper shadow relatively short, this suggests that buyers drove prices higher during most of the session but were unable to carry it through to the close.
This results in indecision among buyers, which leads to a loss of momentum or temporarily reverses direction. When experienced within an uptrend, a Doji signal a potential reversal, indicating consolidation if this candlestick appears in a downtrend.
Three White Soldiers
Three white soldiers are similar to a bullish engulfing pattern. They appear in an uptrend and have three long candlesticks with higher closes, where each finish is successively more elevated than the previous day’s close.
The first two days form a rising window, with the midpoint of the range of the first day overlapping with that of the second. The third day opens above the middle of the first day and closes well into the body of the second white candlestick.
This pattern indicates intense buying pressure as those who sold at higher prices during the first session bought back their shares, pushing prices even higher during the following sessions.
Bullish engulfing is one of the most reliable candlestick reversal patterns. The pattern consists of two candles, a black candle that establishes a new downtrend followed by a white candle whose body engulfs the body of the previous day’s black candle.
This pattern indicates that bulls are starting to take control as selling pressure dries up immediately following the black candle during the session. The second day opens below the previous day’s low but closes well into its body, demonstrating increased buying pressure. This candlestick must extend below the midpoint of its prior black body for confirmation, but it should not be underestimated once established as it has good predictive value.
Here are some examples to show you what they look like:
The first day is a long black candle. The second day opens much lower than the previous session’s close and then recovers, closing at or near its open. This suggests that buyers took control during the trading period immediately following the initial sell-off, pushing prices back up to (and even higher) where they opened.
The Piercing Pattern
The piercing pattern is a bullish reversal that acts as confirmation of a trend reversal after an advance. It consists of three candlesticks, the first being long-bodied with a black body, followed by one where the body candle is white but its lower shadow points down. The third day opens beneath the low of the second session’s open but closes above the midpoint of that candle. After this, prices move decisively higher.
When the first candle is a long black candle, it suggests a solid down-trending day. The second session opens below the low of the first session’s open and then rallies, closing above the midpoint of the body. This implies that buyers have started to enter into the stock.
Bullish patterns are typically found at the bottom of a downtrend. They indicate that there is an upward momentum in prices. Bullish patterns usually consist of long candlesticks with high closes and little or no lower shadows.
The bullish engulfing pattern signals a potential reversal at the top of an uptrend. Three white soldiers signal to buy pressure in a rising price trend and make for a strong bullish signal. Bullish engulfing is one of the most reliable candlestick reversal patterns, while the piercing pattern is a bullish reversal that confirms a trend reversal after an advance.