Understanding the top 10 candlestick patterns

There are many candlestick patterns that have been identified and used by investors to assist in trading performance. Candlestick patterns are best used in conjunction with other analytical tools in order to produce optimum performance. 10 candlestick patterns that traders should learn for investment activities are the following:

* The dark cloud cover: This 2 candlestick high probability formation is bearish. Generally the first candlestick is continuing the bull trend and the next candlestick will gap up and open appearing to continue the trend, but fail to make any bullish headway and close well below the open and well into the real body of the first candlestick.

* Doji: You will find doji’s where the open close, high and low are in close proximity. The candlestick ends up looking like a small cross. It means that the buyers and sellers are indecisive and can indicate potentially that a reversal is about to take place.

* The engulfing candlestick pattern: This formation consists of just two candlesticks. The first of the two will open and close within the real body of the second candlestick, and as such the second one will have an open and close outside the first candlesticks real body. This can be a bearish or bullish engulfing pattern depending upon the full or empty bodied candlesticks in the pattern.

* Evening Star: Commonly regarded as a bearish reversal pattern, this three-day pattern consists of a long white body, followed by a smaller gap up candlestick, with the third and final day closing below the midpoint of the first day.

* The Hammer: This is a single candlestick. The hammer is always bullish It will indicate a continuation in a bull trend and a reversal in a bearish one. It just a small body and a long tail. The tail is imply the bears trying their best to push price down and failing by end of day to keep it there.

* Hanging man: The hanging man is still a hammer, but when its on an uptrend its called a hanging man. Look to the long tail for the intuitiveness in the candlestick. Price pushed down but failed to stay there, this is bullish and so the hanging man tells us the trend will continue. A continuation candlestick.

* Harami: This is a simple two day candlestick pattern that has a relatively small body on the second day that is completely surpassed on both sides by the previous day’s candlestick and is always of the opposite color. It usually occurs during a minor correction in a bear or bull market and signals that this temporary uptrend or downtrend is reaching an end, and the underlying trend will continue. It is especially considered a strong indicator when it appears together with low trading volume.

* Morning Star: This formation is considered a three day bullish reversal pattern that consists of a long bodied black first day, a short gap down second day, followed by a third long white bodied candle, which closes above the midpoint of the first day.

* The piercing line: This pattern is just two candlesticks. It is a bullish reversal pattern. What happens here is the first candlestick will continue the bearish trend down and the next will appear to be following suite on the open but will surprise you as it closes much higher and exceed the 50% level of the first candlestick.

* Shooting star: This is a single candlestick pattern. It looks like an upside down hammer and signals a bearish reversal. As such it’s best when found on a bullish uptrend. Look to the long upper witch for the intuitiveness in this candlestick. The bulls pushed hard like they did in the prevailing trend but the bears won the race by days end closing near the low / open.