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How to Use Bullish Reversal Candlestick Patterns

What is a bullish reversal and how to identify it on the chart? To answer this question, we need to use the type of financial chart to track security and market movements also known as candlestick patterns. We have already introduced some of the best bullish patterns to look for in 2021. Now, it is time you’ve learned how to use them properly under real-market conditions.  

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Originated in Japan, candlesticks got their name thanks to the rectangular body and lines that form the shape of a candle on the chart. As a rule, they represent a daily price worth of a stock or another traded asset. They have evolved turning into stand-alone patterns of various types. Some of them refer to the bearish category while others represent a pull of bullish patterns.

In today’s article, we will find out how to identify bullish reversal as well as how to use bullish reversal candlestick patterns

Why Use Bullish Reversal Candlestick Patterns

Before getting started, it is important to highlight several crucial points for your consideration with further candlestick use:

  • Candlesticks help day traders to use technical analysis to spot different patterns and make correct decisions.
  • Bullish patterns help to identify the best entry and exit points in reference to long trades.
  • Bullish candlesticks make it possible to predict the level, at which the downtrend is about to reverse.
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What Can Bullish Reversal Pattern Tell?

AT some point, daily candlesticks make a formation or group and plot a recognizable pattern on a chart. Each pattern comes with a descriptive name (for example, hammer, engulfing, white soldier, and others). 

They may have different body sizes and shapes, a specific number of lines with different colors, which are sometimes important and sometimes not. No matter what bullish pattern you observe on a chart, you need to remember the following baseline principles:

  1. The bullish pattern is formed only during the downtrend. If not, the candlestick should never be considered bullish but a continuation pattern.
  2. No matter what type of candlestick you utilize, every bullish pattern requires signal confirmation to avoid false data. The best bet if you observe the confirmation within not less than 3 days.

Technical analysis offers several traditional ways and methods to confirm a bullish reversal. They may include oscillators, trend lines, momentum, and volume indicators. With these tools, users have the possibility to reaffirm buying pressure. Here is how they may help:

  • Support – support levels make it possible to improve the robustness and spot the reversal. Traders generally use moving averages, Fibonacci retracement, and other instruments to identify the support level.
  • Momentum – the best way to confirm improving momentum is to use oscillators. It can be identified with the help of RSI, PPO, MACD, and other tools.
  • Money Flows – the instrument relies on the volume-based indicators to underline the market selling and buying pressure. OBV, CMF, and some other indicators can be used to increase the bullish reversal robustness.

If you want to go even further with your predictions and market observations, you are free to combine all of the above-mentioned aspects in a single and powerful tool.

Bullish Reversal Confirmation

As a rule, bullish patterns come with a single or several candlesticks. The reversal itself says that buyers succeeded in overcoming the selling pressure. Once again, all bullish signals require confirmation, as it is impossible to understand if new buyers are able to bid the prices higher. Because bullish patterns are generally short-lasting (they last for 1-2 weeks), it is better to confirm the signal within the next 1 or 3 days after the candlestick occurs.

The Bottom Line

Bullish reversal candlestick patterns make it possible to predict trends and market change. They help to spot price reversal as well as identify sellers losing their positions. The main challenge about bullish candlesticks and signals they provide is the necessity of proper confirmation. This is where traders may need a variety of extra tools in the face of support, momentum, money flows, and other types of technical analysis tools.

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.