It is commonly known that price has only two directions either to move up or down. At the same time, the market is moving in patterns. In other words, some of the most powerful candlestick patterns define the next price move or, at least, it help traders to make specific predictions. Some may say, there is nothing new to expect to form the market. However, if you look closer “under the hood”, you will see how some of the strongest candlestick patterns influence the overall market.
In this article, we will review the 5 best candlestick patterns to see how they may help traders to better understand the market. You will learn why they are so important as well as the way they can influence some of the most popular trading strategies.
If you prefer bearish strategies and wonder which candlestick is most reliable for your particular tactics, Evening Star is definitely the one to consider. It is plotted with a white bar that breaks new highs for the uptrend. With the next bar, the pattern forms a market gap, while the third and the last one completes the chart. It helps traders to foresee the nearest decline. Experts say that this is one of the most powerful candlestick patterns, as it provides more than 70% of accuracy.
Unlike the previous one, this pattern refers to the bullish category. It is formed once the low downtrend has taken place. The same way as the Evening Star Pattern, Abandoned Baby is plotted with three bars that indicate the market gap while fresh sellers are still unable to appear on the market.
As a result, the third gap completes the pattern with a bullish gap. Despite all benefits, the pattern can be quite tricky, especially when it comes to beginner traders. For this reason, it cannot boast high accuracy although it still provides about 50% of chances to read the chart correctly and make the right decision.
These two patterns are a must-have for every trader to keep in his or her toolkit despite the drawback or experience. The main difference is that the Three Black Crows is a bearish pattern while Three White Soldiers is the bullish one. The rest is practically the same. Both complete the following tasks depending on their position on the chart:
If the trend prevails and any of the patterns occur, it means a strong market continuation. Oppositely, if the trend moves in another direction, it is a sign of reversal that is about to boom.
Despite the fact the market is always moving up or down, at some point it may hold for a moment making even the strongest candlestick patterns either bearish or bullish. This is the best time for the Doji candlestick pattern to hit the market. The pattern is quite simple. It looks the same as the + sing.
When the pattern occurs, it means that the market fails to decide either to move up or down. As a result, we have an example of a short neutral condition that cannot refer to either continuation or reversal. So, why do we need that pattern after all?
Doji can be used to retrieve crucial information about the position the pattern is placed. For example, a place, where the Doji was spotted, may end up with a reversal or continuation after a few next bars. Otherwise, when two Doji patterns appear at the same time, it can be a sign of price losing its momentum.
Three Line Strike is another powerful candlestick pattern from the bullish squad. It is plotted by four bars. Each of them posts lower lows while the last one reverses in an outside bar with a wider range to close above the first candle in the series. The accuracy rate is over 80%, which makes Three Line Strike one of the best candlestick patterns on our list.
Despite the fact nothing new is happening to the market that keeps moving up and down, its directions are sometimes quite hard to predict. This is where powerful candlestick patterns may come in handy. They guarantee a high accuracy rate when utilized properly. Besides, they help to generate essential data about the position they can be found. However, relying only on a single pattern is wrong. The best way is to use a blend of charts and technical tools to ensure the most favorable trading outcome.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.