Bullish Candlestick

How to Trade Bullish Candlesticks

9 min read

Bullish candlesticks are one of two different candlesticks that form on stock charts. The other type is bearish candles. Bullish candles show that a stock is going up in price. They are typically green, white, or blue on stock charts. Bearish candles show that the price is going down. They are typically red, black, or orange on stock charts. 

A bullish candlestick makes up part of the foundation of all stock charts. Bullish candlesticks form when the bulls try to push the price up. The close of the candle is higher than its opening price. These candlesticks make traders aware of buyers. The more buyers there are, the more price rises. These candlesticks are on every chart; Bullish candlestick patterns tell when a stock is in a bullish trend. Reading candlesticks is the first line of defense in technical analysis.

Bullish Candlestick Patterns

Basics

Each bullish candlestick shows one day’s worth of price data: the opening price, the closing price, and the high and low of the day. In addition, the color of the candlestick body tells if the opening or closing price is higher.

The same formula applies to each time frame chart being viewed. For example, traders typically use candlestick charts from 1-minute candles to monthly candles.

The closing price has to be higher than the opening price to get bullish candlesticks. The filled part of the candlestick is called the real body. The lines from the top and bottom are tails (bottom) or wicks (top).

The high of the day is the top wick. The low of the day is the bottom wick. Bullish candlesticks show buying pressure.

The shorter the real body of a candlestick, the more indecisive the stock. These candles would be known as dojis or spinning tops. A nice, full, real body shows that the stock is strong.

Bullish Signals

Over time, candlesticks group together to form patterns. Charts give valuable insight into a stock’s future. Price action is extremely important; bullish candlesticks signal how to trade.

Reversal and confirmation patterns are always happening. So pay attention to what the candlesticks are telling. A pattern like a hammer candlestick is a bullish reversal pattern, potentially ending a downtrend. On the contrary, that may signal that the stock is nearing a bottom in a downtrend.

Getting confirmation before jumping into a trade is important, as it could be a fake-out. A reversal pattern must be validated by continuation and an increase in volume.

Bull flags are continuation patterns, meaning the stock will move up and trade sideways before continuing to move up again. Therefore, using patterns to trade is imperative. Candlesticks are always forming patterns on any chart time frame you use.

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HIGHLIGHTS

Technical Indicators

Knowing how to read candlesticks is the first and most important trading step. Once you recognize that, it’s important to pair them up with technical indicators such as VWAP, simple moving averages, and exponential moving averages, to name a few.

Technical indicators are a matter of preference; find which ones work for your trading style. Candlesticks ultimately tell where support and resistance levels are located.

The technicals tell when a trend is happening. For example, all the technicals can point to a bearish trend. Then, a bullish candlestick forms; now, if the real body is small, it is indecision and could go either way.

However, if a big, full, real body forms, know that buying pressure is coming.

Hammer

Bullish Candlesticks Trading Strategy

  • Enter a long position when the price breaks above the high of the bullish candlestick
  • Use a candlestick close below the low as a stop level

Day Trading

When day trading, traders can buy and sell a stock multiple times in one day. The 1-minute and 5-minute charts are typically used for intraday trading; pair that information with longer time frames such as 15-minute and daily charts to get an even broader picture. See where the previous support and resistance areas have been; previous support can become future resistance and vice versa. Therefore, one must be precise in entries and exits when day trading.

Bullish candlesticks, along with moving averages, will help tremendously. Like daily charts, intraday charts form patterns but on a smaller scale.

Because the stock is not held for more than a day, you must find the patterns in shorter time frames. However, since it is moving much quicker, it is important to get a good understanding of what to look for in regards to spotting these patterns.

Bullish Candlesticks Example

How to Trade Bullish Candlesticks
Bullish to Bearish Pattern

Bearish Reversal

The picture above is a daily chart of $MSFT. You’ll notice three bullish candlesticks created a three white soldiers pattern. This shows that just because the pattern was a bullish formation, it happened inside of a bigger bear flag pattern.

The bear flag occurred inside a large falling wedge or megaphone pattern. Then, there was a large rising wedge pattern, which was a bullish breakout. 

AAPL 1 Min Chart

This 1-minute chart of AAPL shows strong bullish confirmation when price action reversed near the bottom of a downtrend. Multiple bullish candlesticks were followed by consolidation candles, forming an ascending triangle. After multiple touches of resistance, there was a flat top breakout.

Best Bullish Candlestick Patterns

  • Hammer – single bullish reversal candlestick
  • Inverted hammer – single bullish reversal candlestick
  • Dragonfly doji – single candlestick with a small lower body and longer shadow
  • Bull flag – bullish candles form a flag pole, then bearish candles form a consolidation
  • Rising three methods – looks like a bull flag with fewer candles
  • Falling wedge – trendlines form a downtrend, then reverse when the price breaks the apex
  • Bull pennant – looks like a bull flag but forms a pennant formation
  • Ascending triangle – higher lows form an ascending trendline, with previous highs forming the top
  • Double bottom – when the price holds a previous low, it forms a double bottom
  • Inverse head and shoulders – this pattern is bullish when the right shoulder breaks above the left
Bullish Trendline

On this daily chart of AAPL, notice the three support touches, creating a solid uptrend. Be aware of when the price breaks the support levels. You’ll see in this picture that the price returned to retest the gap. The gap level is now resistance. 

Final Thoughts

Bearish and bullish candlesticks make up the foundation of all patterns. That’s why it’s important to see where these patterns take place and the story that they are telling you overall. Fakeouts and reversals happen all the time. No pattern is perfect.

A bullish trend forms when a stock forms higher highs and lower lows. Ideally, you want to connect at least two lows, but three or more is better. Highs and lows are also known as peaks and valleys. You can create trend lines using drawing tools with your broker.

Swing trading means holding stock overnight; a swing trade usually lasts three days up to a few weeks. Therefore, reading bullish candlesticks and patterns on a daily chart is necessary.

Patterns, moving averages, and candlestick charting show trend reversals, price action, support, and resistance. Making a bad swing trade can cost money. However, if a stock does not go according to plan, there is no need to worry. It happens to everyone. If a trader says they “have never been wrong,” they lie. Always wait for confirmation and use technical tools to your advantage. Stick to a game plan and see how it goes. Worst comes to worst, the trade gets stopped. It’s not a big deal; try again next time.

Frequently Asked Questions

  • Hammer - bullish reversal candlestick pattern found at support levels
  • Bull Flag - popular bullish breakout momentum trading pattern
  • Bull Pennants - similar to bull flags but have a pennant formation
  • Bullish Harami - two-candle reversal pattern
  • Morning Star - three candlestick bullish reversal pattern

Bullish patterns comprise two to three candlesticks that form breakout patterns and trendlines.

Three green candles, when trading, are called three white soldiers. This shows strong bullish momentum. The reverse of this pattern is called the three black crows. 

  • Trendlines - two to three confirmations of support show a strong bullish uptrend
  • Hammer candles -  suggest a strong reversal to the bullish side
  • RSI Oversold - When pricing action is oversold, buyers typically come in to create bullish price action
  • MACD Crossover - This is a popular indicator that shows when a bearish trend is potentially reversing

Bullish patterns are predicted when two or more candlesticks form patterns. These patterns typically are 70% or more reliable, depending on how strong the uptrend or reversal confirmation is.

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