Candlestick Reversal Patterns - Stock Market Predictions

CANDLESTICK REVERSAL PATTERNS

There are two main types of candlestick reversal patterns that signal a change in market sentiment. They are the bullish and bearish hammer. These can be used on any chart be it a daily, weekly or 5 minute candlestick chart. For the purpose of this illustration, we will be using a daily chart. A candlestick pattern is made by using the opening and the closing data as well as the highs and the lows of the day. They give a very nice visual representation of the mood of the market.

Hammer Definition

A hammer indicates the bottom of a trend. It occurs at the end of the bullish or bearish cycle and indicates a reversal pattern. Hammers have small bodies and long shadows. What it represents is the amount to which buyers or sellers moved the market after it opened.

Bullish Candlestick Reversal Pattern

Simply put, a bullish hammer pattern is when a sock opens at a price below the previous days lows and closes above the previous days highs. It actually makes common sense if you think about it. The sellers have finally been washed out and the buyers have taken control. This is a very powerful indicator for use in swing trading. Nice and consistent profits can be made by screening the market for this type of candlestick reversal patterns.

Bearish Candlestick Reversal Pattern

This is obviously the opposite of a bullish hammer. The bearish hammer is when a stock opens above the previous days high and closes below the previous days lows. It is shown graphically in the chart below. The bearish hammer indicates that the particular stock has lost its upside momentum and at the very least is due for a pullback.

There are several other candlestick reversal patterns to look at including the Harami cross, the big black candle, the big white candle and several others that are beyond the scope of this article. The two candlestick reversal patterns outlined here indicate the most reliable reversal indicators for use in the stock market in my opinion.

Stock Market Predictions

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