Single Candlestick Patterns

A

ll the single ladies, all the single ladies!

Yes, the next trends will be your single ladies, who will wait for you to recognise them in the crowd, so they can signal some potential market reversals.

Here are the four basic single Japanese candlestick patterns:

The Hammer

The hammer formation is a price model that gives us signals to buy and is located at the end of the downward trend. 

It appears at the bottom of a downtrend and signals a bullish reversal. The hammer candle has a small body, little to no upper wick, and a long lower wick – resembling a ‘hammer’.

The pattern indicates that the price dropped to new lows, but subsequent buying pressure forced the price to close higher, hinting at a potential reversal. The extended lower wick is indicative of the rejection of lower prices.

The ordinary hammer is formed by a candle with a large lower shadow and a body that is at least twice less than it and located at the top.

Another feature is the small or completely missing top shade. It is not obligatory, but it is desirable for the candle to be a “bull”.

Don’t make the mistake to automatically place a buy order when you see this formation! You need more bullish confirmation before you decide to pull the trigger.

A typical example of confirmation would be to wait for a white candlestick to close above the open to the right side of the Hammer.

The Inverted hammer 

The inverted hammer candlestick, like the bullish hammer, also provides a signal for a bullish reversal. The candle is, as the name suggests, an inverted hammer. The candle has a long extended upper wick, a small real body with little or no lower wick.

The candle opens at the bottom of a downtrend before the bulls push price upwards – reflected in the extended upper wick. Price does eventually return down towards the opening level but closes above the open, to provide the bullish signal. If the buying momentum continues, this will be seen in the subsequent price action moving higher.

The Hanging Man

A hanging man candle is a candlestick formation that reveals a sharp increase in selling pressure at the height of an existing uptrend. 

The hanging man candle is characterized by having a small real body, little or no upper shadow (wick) and a lower shadow at least twice the length of the body.

Upward trend: The hanging man can only be identified as such once it has formed at the top of an uptrend.

Opening level: The hanging man candle can either be a green candle (bullish), or a red candle (bearish) although, the bearish candle provides a better indication of a weakening market.

Upper shadow: A small upper shadow indicates that there was an attempt to maintain the current uptrend before the significant drop in the price.

Long lower shadow: This is probably one of the most insightful observations on the candle, depicting a significant sell-off before the bulls tried to regains some ground forcing the closing price to end up somewhat closer to opening levels but still down for the period.

Closing level: In this case, the closing level was below the opening level and therefore, confirms that this is a bearish hanging man candle.

Shooting Star

The Shooting Star look identical to the Inverted Hammer, but the only difference between them is whether you’re in a downtrend or uptrend.

The Shooting Star candlestick formation is viewed as a bearish reversal candlestick pattern that typically occurs at the top of uptrends. 

The Shooting formation is created when the open, low, and close are roughly the same price. 

Also, there is a long upper shadow, generally defined as at least twice the length of the real body. 

When the low and the close are the same, a bearish Shooting Star candlestick is formed. 

The bearish shooting star is considered a stronger formation because the bears were able to reject the bulls completely plus the bears were able to push prices even more by closing below the opening price. 

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