Financial Analysis

Railway Track (Bullish)

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Piercing Line

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Dragonfly Doji

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Inverted Hammer

Indication

Bullish reversal

Reliability

Low

Description

During a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop. It needs bullish verification on the next candlestick.

Engulfing (Bearish)

Indication

Bearish reversal

Reliability

Medium

Description

Occurring during an uptrend, this pattern characterized by a large black real body, which engulfs a white real body (it doesn’t need to engulf the shadows). This signifies that the uptrend has been hurt and the bears may be gaining strength. The Engulfing indicator is also the first two candles of the Three Outside patterns.
It is a major reversal signal.

Factors that are increasing this signal’s reliability:

1. The first candlestick has a very small real body and the second candlestick a very large real body.
2. The pattern appears after a protracted or very fast move.
3. Heavy volume on the second black candlestick.
4. The second candlestick engulfs more than one real body.

Notes

• Two candle Bearish pattern
• Reverse of a bullish engulfing pattern
• Must come after and uptrend
• High of the pattern becomes resistance
• First candle is white real body
• Second candle is a black body that completely engulfs the first candle
• The first candle real body must be as small as possible
• Shadows are not a concern

Engulfing (Bullish)

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Shooting Star

Notes

• Single candle
• Bearish pattern
• Inverse of a hammer
• More powerful than the hammer
• Colour of the body does not matter
• Must come after an uptrend
• Long upper shadow must be at least twice the height of the real body
• Works better compared to hammer
• High of the pattern is the resistance
• Resistance is usually tested less frequently
• The real body must be as small as possible
• The lower shadow must be as small as possible

Hammer

Summary

Notes

The hammer candlestick is a single candlestick pattern that holds significant importance in technical analysis, especially within the realm of candlestick charting. It typically materializes during a downtrend and signals a potential reversal in the prevailing price direction.

Here’s how to identify a hammer candlestick:

• Appearance: A hammer candlestick is characterized by its unique shape, resembling that of a hammer. It consists of a small body positioned at the top of the candlestick and a long lower shadow extending downwards. The body represents the price range between the opening and closing prices, while the lower shadow signifies the distance between the lowest price and the closing price.
• Small Body: The body of the candlestick is relatively small compared to its overall length. It indicates minimal price movement between the opening and closing prices, often appearing near the high of the session.
• Long Lower Shadow: The most prominent feature of a hammer candlestick is its long lower shadow, also known as the tail or wick, which extends below the body of the candlestick. This shadow demonstrates that despite downward pressure during the trading session, buyers were able to push the price back up significantly, indicating potential bullish strength.
• Short or Nonexistent Upper Shadow: While some hammer candlesticks may possess small upper shadows, they are typically shorter than the lower shadow or even nonexistent. This suggests that the price did not move considerably above the opening level during the session.
• Context: A hammer candlestick is most meaningful when it emerges after a prolonged downtrend, indicating potential exhaustion among sellers and a shift towards bullish sentiment. It often appears near support levels or previous lows, adding to its significance as a reversal signal.

Traders often seek confirmation signals to validate the potential reversal indicated by a hammer candlestick. These may include higher trading volume accompanying the pattern or subsequent price action confirming a bullish reversal.

In summary, the hammer candlestick serves as a powerful tool for identifying potential reversals in market trends, offering traders valuable insights into shifts in supply and demand dynamics.

The Basics

The Basics

Forecasting