More examples of price patterns
Let’s go back today to the speech started last week, namely the PRICE PATTERN, and let’s do it by continuing with a roundup of some of the most popular. Obviously there are many and an entire book would not be enough to enclose and explain them all … Let’s see some of them, however, trying to contextualize and describe them at best.
as for most of the patterns also for this there is a bullish version and a bearish one. This is an inversion pattern, therefore of the reversal category and therefore appears at a moment of market uncertainty thus giving an indication of probable inversion of the current trend or at least of a strong retracement.
It consists of only two candles which appear, as mentioned, during a well-defined trend.
Specifically in a Harami bullish we will find ourselves in front of a clear negative trend and on an important level we will notice the formation of a bearish candle with a very large body and reduced shadows, immediately after we will notice the formation of a much smaller candle, of opposite color (in this case green, bullish) and the latter will be completely incorporated into the previous one (inside). An important feature will be that the closing of the smallest candle must be lower than the opening price of the larger one and the opening price of the smaller one higher than the closing of the large one. A signal that strengthens the pattern is the position of the small candle which must be perfectly in the center of the large one, especially if it is almost devoid of shadows.
If the small candle were a doji, that is, a candle practically devoid of body and with two pronounced shadows, it would further strengthen the reversal signal and in this case the Harami would take the name of Harami cross. To conclude, this pattern, to be valid, needs confirmation, namely the formation of a third candle of the same color (red for bearish Harami, green for bullish) whose closing must be below the opening of the largest candle. (also called the mother candle) bearish harami, above the opening of the mother candle obviously in the bullish Harami.
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Also in this case it is an inversion pattern and is divided into Tweezer Top and Tweezer Botton depending obviously on whether it is formed on a minimum or a maximum of a trend. It will therefore be Top and consequently bearish at the peak of a trend up. Looking at any overbought / oversold indicator we will find ourselves on high overbought values.
the pattern also in this case is composed of two candles that will have in common their maximum reached, better if they are of different color, but not essential. The maximums of the two candles can be reached by the body or even by their shadows, the important thing is that in the two periods taken into consideration the price has reached almost the same value. The second candle can also be a doji. This pattern, like almost all the rest, works on all TIME FRAMES, but larger periods, H4, DAILY, are more effective and performing.
Three White Soldiers:
This is a classic bullish reversal PATTERN and as a result forms on important price levels at the end of a bearish trend.
It consists of THREE long and bullish candles in sequence. The closure of the first will therefore be overcome by the closure of the next and the same for the closure of the third with respect to that of the second. After such a sequence of candles it is therefore reasonable to expect a trend reversal, or at least a strong retracement. This pattern owes its name (Three White Soldiers) because it consists of three consecutive bullish white (green) candles.
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Three Black Crows:
This pattern is the bearish version of the previous one and consequently forms at the end of a trend up.
After a strong uptrend you will notice the formation of a long bearish red candle followed by two others that are also very long and with decreasing lows. After this event, we can expect a trend reversal or at least a strong retracement.
Dark Cloud Cover:
Another reversal pattern is the Dark Cloud Cover and consists of two candles, a bullish white or green and a subsequent bearish black or red one. Obviously we are talking about reversal so we have to find ourselves in a bullish trend situation.
The first candle, the bullish one, will be with a very pronounced body and will be followed by a red candle, also with a fairly long body with an opening above the high of the previous one and the closing placed approximately in the middle of the body of the first, or in any case always above. the opening price of the green.
This type of graphic formation is quite reliable, but as always, to have more reliable and performing signals it is better to wait for a confirmation that could be the formation of a series of bearish candles with very compressed open and close and all incorporated in the range of the most bearish. large appearance immediately after the last bullish. This is an excellent sign if we find ourselves at important price levels such as historical RESISTANCES, that is, levels that have rejected prices in the past as well.
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Candlestick Dumpling top and Fry Botton:
These types of patterns are a little different from those seen previously, in fact they do not have a fixed number of candles and are generally exploited by looking for them on larger TIME FRAMES. However, this is a reversal pattern.
The Dumpling Top manifests itself at the end of an uptrend. In practice, after a series of bullish candles with increasingly reduced bodies, a series of small bearish candles alternating with one or more doji candles are formed, in short, the market begins to manifest uncertainty and often becomes for a long lateral stretch, after a new one. bullish candle, always however with a fairly compressed body, a bearish candle with a long body appears. From this moment a bearish trend start or at least an important retracement is very likely.
Obviously the Fry Pan Botton pattern will form in the same way but clearly at the end of a bearish trend, so we will have the formation of bearish candles with an increasingly smaller and compressed body until we see very small bullish candles alternating with doji with the market turning sideways manifesting uncertainty, at this point a small bearish candle may appear followed by a long bullish candle which could therefore announce the reversal occurred or at least a strong retracement.
Also today we have seen a very interesting series of PATTERN that can be found daily on the charts of any financial instrument and on any TIME FRAME. It is very important for those approaching the world of TRADING to be able to recognize and contextualize them as best as possible because they can offer us good operational ideas and essential and fundamental indications for a correct operation and aimed at bringing home profits.
As explained several times, there are no magical or infallible PATTERNs, it is up to us to know how to interpret them in the best way, perhaps by testing them in the past to see which ones offer us more probabilities of GAIN. If we add to all this an excellent MONEY MANAGEMENT then surely TRADING will be able to give us great satisfaction.
Obviously studying and knowing how to rely on trained and professional people can really make a difference and in this BPFX with its SDO can help all those who want to grow and improve in this fascinating world.
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