Bearish candlesticks are a common part of stock charts. Candlesticks are probably the most important thing you can learn. Even more so than moving averages as candlesticks are the first line of defense in technical analysis. Experienced traders use candlesticks as an early warning system to find entries and exits.
Bearish and bullish candlesticks are created by price action and together they make up charts. Japanese rice trader Homma developed candlesticks after he saw a correlation between the price of rice and emotions. Emotions will always move markets. The most powerful market moving emotions being fear and greed.
Bearish candlesticks tell you when selling power is coming in. The markets are a tug of war between the bulls and the bears. One side is always going to win. Some days the bulls win. Some days the bears win. Each candlestick tells a unique story.
Bearish candlesticks come in many different forms, patterns and sizes. Their uniqueness and combinations give a hint as to what may happen in the future. That’s why it’s so important to decipher their meaning.
BEARISH CANDLESTICKS – HOW DO YOU READ THEM
Each candlestick is showing the price movement for the day. The opening price, closing price, the high of day and the low of day. The color of the candlestick tells you if the opening or closing price was higher.
Bearish candlesticks have a lower closing price. The real body is the filled part of the candlestick. The shorter the real body is, the more indecision the stock is in.
The lines coming out of the top and bottom of the candlesticks are wicks (top) or tails (bottom). They are also referred to as shadows. The top wick is the high of the day. The bottom shadow or tail is the low of the day.
Bearish candlesticks show you the selling pressure coming in. When a bearish candle forms the price of the stock goes down causing the closing price to be lower than the opening price.
BEARISH CANDLESTICKS – PATTERNS
Bearish candlesticks patterns form over a period of time. These patterns give you insight into the future movement of a stock or market. There is always going to be a continuation or reversal of a pattern or trend.
Paying attention to the patterns keep you informed of how to buy. Whether it’s going long with a stock or buying calls. As well as shorting or buying puts.
A head and shoulders pattern also known as an F you pattern is a bearish reversal pattern. You get a left shoulder, head and right shoulder along with a neckline. The neckline is support. If the stock breaks that support, it’s moving into a downtrend.
You always want to wait for a confirmation of a reversal before buying or shorting. You don’t want to get caught in a fake out. Patterns are always forming on stock charts. That’s why it’s important that you can find them.
BEARISH CANDLESTICKS – CANDLESTICKS AND TECHNICAL ANALYSIS
Using a bearish candlesticks pattern in tandem with technical analysis can make your trading even better. There’s so many signals candlesticks can give you.
Just one of those signals is support and resistance. Being able to find support and resistance is crucial to successful trading. Wicks and bodies of candlesticks are always used for that. You can also use VWAP to find support and resistance.
Moving averages such as the simple moving average or exponential moving average can be used as a buy and sell signal along with bearish candlesticks.
There’s no crystal ball in trading but knowing how to use candlesticks and technical analysis together paint the clearest picture.
News and emotions do move markets so there’s no guarantee now matter how well you use these to be able to predict correctly 100% of the time. If there were, everyone would be traders.
BEARISH CANDLESTICKS – HOW TO TRADE THEM
When you day trade, you’re buying and selling a stock multiple times a day. Day trading requires you to be fast and precise. If you’re not, you could lose on a trade.
The intraday charts along with technical indicators have the buy and sell signals and move much faster. So whether you’re trading penny stocks or the larger cap stocks, you need to be able to spot patterns quickly.
Swing trading is different. When you’re swing trading you’re holding a stock at least overnight. Swing trades typically last 3-6 days up to 2 weeks. The daily chart is the best chart to use when looking t0 make a swing trade.
Because you’re holding for a longer period of time you want to see the patterns forming on a larger scale. Bearish candlesticks will tell you whether to go long and buy call options as well as going short and buy put options.
BEARISH CANDLETICKS – THE BOTTOM LINE
Using bearish candlesticks along the technical analysis will tell you how to trade. Knowing how to read them gives you the advantage over other traders. Study them to become the best trader you can be.
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