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n recent decades, widespread use of computers in analyzing charts and programming of expert advisors has made the method of trading patterns more popular. A pattern is a regularly repeated formation on the price chart that indicates a certain price movement in relation to the pattern. Formations that the technical analysis deals with are called patterns. Therefore, a combination of candlesticks is also a pattern. How to identify complex candlestick patterns and where to use them best?
As we have mentioned above, it is better to observe complete formations, or patterns, on higher time frames. In this case, they are far more relevant than on lower time frames, for example, on a 1-minute chart.
Bear in mind that if you are a day trader, you may consider using multiple time frame analysis which involves monitoring the price on various time periods. That is, you first define candlestick patterns on D1 or H1 and then shift to your usual time frame, for example H1, to find the entry point.
Types and features of complex Japanese candlestick patterns
Engulfing candlestick pattern and the Hammer is a rare pattern that consists of two models and signals a possible reversal of the price. It is usually formed amid a rapid downward movement followed by a slowdown.
Abandoned Baby pattern is a powerful and yet rare candlestick that signals a high probability of a trend reversal. The pattern consists of three price bars the color of which depends on the price direction.
Bullish candlestick pattern appears within a downtrend when the first candle is bearish with a long body. The second candle is a Doji with a distinctive gap between the first and the second one. The third candle is bullish with a relatively long body.
Bearish candlestick pattern is formed within an uptrend where the first candle is bullish with a long body. The second candle is a Doji with a distinctive gap between the first and the second one. The third candle is bearish with quite a long body.
Three Gaps pattern is a multi-level pattern found on the daily time frame, or D1. It signals that a downtrend may be approaching its exhaustion and that an upside reversal is coming.
Suppose that gaps are being formed for three consecutive days. On the fourth day, a reversal starts from the green signal candlestick. As a result, all previously opened gaps are closed amid a developing uptrend.
Three White Soldiers is a candlestick pattern that confirms the continuation of the bullish trend.
A slowdown in the price movement represented by consolidation or a narrow flat can be followed by Three White Soldiers. This pattern consists of 3 consecutive bullish candles of medium size. It signals that the current trend is extended towards the previously formed candlesticks.
It is important to note that the candles shouldn’t be too long as it is a clear sign of an overbought market, so we won’t get the desired effect.
Three Black Crows is a mirror version of the previous pattern and it appears within a downtrend.
A slowdown in the price movement represented by consolidation or a narrow flat can be followed by Three Black Crows. This pattern consists of three consecutive bearish candles of medium size. It signals that the current trend is extended towards the previously formed candlesticks.
It is important to keep in mind that the candles shouldn’t be too long as it is a clear signal of an oversold market, so we won’t get the desired effect.
As we have mentioned above, it is better to observe complete formations, or patterns, on higher time frames. In this case, they are far more relevant than on lower time frames, for example, on a 1-minute chart.
Bear in mind that if you are a day trader, you may consider using multiple time frame analysis which involves monitoring the price on various time periods. That is, you first define candlestick patterns on D1 or H1 and then shift to your usual time frame, for example H1, to find the entry point.
Types and features of complex Japanese candlestick patterns
Engulfing candlestick pattern and the Hammer is a rare pattern that consists of two models and signals a possible reversal of the price. It is usually formed amid a rapid downward movement followed by a slowdown.
Abandoned Baby pattern is a powerful and yet rare candlestick that signals a high probability of a trend reversal. The pattern consists of three price bars the color of which depends on the price direction.
Bullish candlestick pattern appears within a downtrend when the first candle is bearish with a long body. The second candle is a Doji with a distinctive gap between the first and the second one. The third candle is bullish with a relatively long body.
Bearish candlestick pattern is formed within an uptrend where the first candle is bullish with a long body. The second candle is a Doji with a distinctive gap between the first and the second one. The third candle is bearish with quite a long body.
Three Gaps pattern is a multi-level pattern found on the daily time frame, or D1. It signals that a downtrend may be approaching its exhaustion and that an upside reversal is coming.
Suppose that gaps are being formed for three consecutive days. On the fourth day, a reversal starts from the green signal candlestick. As a result, all previously opened gaps are closed amid a developing uptrend.
Three White Soldiers is a candlestick pattern that confirms the continuation of the bullish trend.
A slowdown in the price movement represented by consolidation or a narrow flat can be followed by Three White Soldiers. This pattern consists of 3 consecutive bullish candles of medium size. It signals that the current trend is extended towards the previously formed candlesticks.
It is important to note that the candles shouldn’t be too long as it is a clear sign of an overbought market, so we won’t get the desired effect.
Three Black Crows is a mirror version of the previous pattern and it appears within a downtrend.
A slowdown in the price movement represented by consolidation or a narrow flat can be followed by Three Black Crows. This pattern consists of three consecutive bearish candles of medium size. It signals that the current trend is extended towards the previously formed candlesticks.
It is important to keep in mind that the candles shouldn’t be too long as it is a clear signal of an oversold market, so we won’t get the desired effect.
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