We can’t stress the importance enough of the best candlestick patterns in relation to your success as a trader. Because of this, we’ve put together a free e-book.
When it comes to the best candlestick patterns, there are really only two types of outcomes: continuation and reversal. Either the current pattern and price direction will continue, or it will reverse. It’s as simple as that.
One of the best candlestick patterns is the three line strike. As you can see in the following example, the price action is in a downward trend. In order to spot this pattern look for three black candles that form lower lows followed by a tall white candle.
The tall white candle needs to open below the prior close price and close above the first day's open price. In other words, the last candle spans most of the price action of the prior three days.
Typically the reversal is accompanied by a large surge of volume. So make sure you check your volume bars to confirm that this is, in fact, a trend reversal. You then see a closing price higher than the opening price of the very first candle in the series.
According to the internationally known author and trader, Thomas Bulkowski, this bullish three line strike reversal pattern predicts higher prices with an 84% accuracy rate. Pretty impressive if you ask me!
What I like about massive moves up is they generally have massive moves down. And that's where this pattern comes into play. The bearish two black gapping continuation pattern appears after a major uptrend. It acts as a continuation of the downward price trend.
As you can see in example below, the stock gapped down with the two black candles forming lower lows.
In order to spot this pattern, look for two black candles that gap below the prior one and the second of the two candles has a lower high. According to Bulkowski, 68% of the time the stock will continue to fall in price when this pattern appears.
Since I like to short, spotting two black gapping patterns are prime for making profits. Hence the need to know the best candlestick patterns. We discuss multiple patterns in our trading rooms.
Once again with the best candlestick patterns, this reversal pattern appears at the top of a major uptrend. It is characterized by three black bars with lower lows that close near intra-bar lows.
Similar to the Two Black Gapping pattern, it predicts the decline in price will continue even lower. In fact, the decline could trigger a larger-scale downtrend.
If you look at point A on the chart, you see the start of the reversal. Unfortunately, many inexperienced momentum traders get trapped here. They see the doji indecision candle.
Then the bullish white candle and assume its a momentum push upwards. They then buy in only to have the pattern reverse - and it reverses 78% of the time!
In order to prevent getting trapped in this reversal pattern: watch for volume confirmation. If the volume is starting to fade while the price is going up this is a sign the price is going to reverse.
A 78% reversal sounds high. The reason is that a close below the bottom of the candle pattern will mark it as a bearish reversal.
However, the price needs to climb and close above the top of it to qualify as a bullish continuation. Because the price is near the candle's low, it is much easier for a downward breakout than a push upward.
Knowing the little details is important to trading the best candlestick patterns. Check out our trading service to learn more.
In my opinion, this is another money making pattern for short sellers, and I can see why. The evening star acts as a bearish reversal of the upward price trend. According to Bulkowski, this pattern predicts lower prices with a 72% accuracy rate.
This pattern is characterized by a tall white candle in an upward trend which pushes the price to a new high. Following that, we see a small narrow candlestick which means buyers couldn’t push the price any higher - a sign of an imminent reversal. Sure enough, the wash happens and price action falls.
If you want to be successful as a trader, you need to know your candlesticks. What's great is that you have lots of options to learn. We have a plethora of options such as a candlestick school with courses, videos and even a free e-book to get you started. Check us out today to get started in your trading journey.
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