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Technical Analysis Candlestick charts Part 4

Reversal Patterns

Reversal patterns are candlestick patterns that announce a trend reversal.

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Bottom Reversals

The following rules are applicable for a bottom reversal:

  • A bottom reversal is only possible AFTER a downtrend.
  • Most of the patterns need a confirmation.
  • A confirmation must appear one up to three candles after the pattern.
  • This confirmation is a big white candle, high volume with the new up-move, a rising window, or breaking a resistance.
  • A reversal pattern during price reaction must be considered a continuation pattern.
  • For the best result, you must combine candlestick patterns with Western technical analysis.
  • An unconfirmed pattern has no further meaning.
Engulfing Bullish

engulfing bullish

In a downtrend, there is a small black body, not a doji, followed and enclosed by a bigger white body.
Though not necessary, it is better when the white body also encloses the short shadows of the black candle.

An exceptional occurrence at the end of a downtrend is a white body followed by a bigger black body; this is called a last engulfing pattern.

engulfing bullish confirmation

Piercing Line

piercing line

In a downtrend, a bigger black body is followed by a white body with a lower opening price than the low of the black body; however, the white candle closes above the midpoint of the black body.

piercing line example

Bullish Counterattack

bullish counterattack

A bullish counterattack is a bigger black candle in a downtrend, followed by a bigger white candle. Closing prices of both candles are at the same price level.
Confirmation is needed.

bullish counterattack example

Bullish Harami

bullish harami

In a downtrend, a white (but preferably a black) body is followed by a small white or black candle that is completely covered by the first candle body.

A bottom reversal signal after confirmation. Black-white and black-black (called homing pigeon) combinations are the most common.

bullish harami example

Bullish Harami Cross

bullish harami cross

In a downtrend, a white (but preferably a black) body is followed by a doji that is completely covered by the first candle body.
A bullish harami cross pattern needs confirmation.

bullish harami cross example

Morning Star

morning star

A bigger black body, followed by one or more small black or white bodies below the closing price of the first black body. The white candle that follows ideally lays 50% or more within the first black body and has a rising window with the previous candle body.

morning star example

Morning Doji Star

morning doji star

A bigger black body, followed by one or more doji’s with a falling window below the closing price of the first black body. The white candle that follows ideally lays 50% or more within the first black body and has a rising window with the previous doji body.

This is a stronger reversal signal than a morning star.

morning doji star example

Bullish Abandoned Baby

bullish abandoned baby

An abandoned baby pattern is a morning doji star with a window between the doji and the black and white candle, resulting in an island reversal. The island can have more candles and more than one doji.

bullish abandoned baby example

 
Hammer

hammer

A hammer is a small white or black body close to the high price. It has a long shadow below with a minimum size of twice the height of the body. There is a very small shadow or no shadow at the top. A dragonfly doji is a specific version of the hammer pattern.

Confirmation is required. A white body is more positive.

hammer example

Inverted Hammer

Inverted hammer

An inverted hammer is a small black ( but preferably a small white) body near the low price. It has a long shadow above that is, at minimum, twice the size of the body. It only has a very small shadow or no shadow below. A gravestone doji is a specific version of the inverted hammer.

A bottom reversal only after confirmation.

Inverted hammer example

Tweezer Bottoms

tweezer bottoms

Two or more candles making lows together. Preferably, the lows are made with low prices, but they also can be combinations of any of the other prices. Size and color are not important. This is a reversal pattern that, most of the time, is part of another pattern.

tweezer bottoms example

Fry Pan Bottom

fry pan bottom

The fry pan bottom is formed with a number of smaller candles. After this bottoming pattern, the price usually makes an up-move with a rising window.

A fry pan bottom is a powerful reversal pattern.

fry pan bottom example

Three River Bottom

Three river bottom

During a downtrend, there is a bigger black candle on the first day of this pattern. The second day starts with a higher opening price; then makes a new lower low and closes the day below the opening price. The third day opens lower and forms a small white body with a closing price below the closing price of the second day.
A rare bottom reversal pattern; confirmation is required.

Three river bottom example

Three White Soldiers

Three white soldiers

Three white candlesticks with each bar having higher closing prices, close to the high of the bar. Opening prices of candles two and three are within the body of the previous candles.
Many times, there will be a small reaction before the new uptrend is resumed.

Three white soldiers example

Candlestick Charts Next -Previous -Part 1 -Part 2 -Part 3 -Part 4 -Part 5 -Part6 -Part7

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