Candlestick charts are basically a technical tool used to pack data into single bars from multiple timeframes. It is more beneficial than the traditional open-close, low-high close bars. It builts patterns that are used for predicting price directions. It is a colorful technical tool that adds depth to the information with the help of accurate color coding.

It was brought into consideration by Steve Nison when he launched his popular book “Japanese Candlestick Charting Techniques” in 1991. Now, a lot of traders can effortlessly identify these color formations, including bearish dark cloud cover, evening star, and three black crows. Additionally, it has single bar patterns like Doji and Hammer Candlestick too. These types of candlesticks are incorporated into dozens of long and short-side trading strategies.

Reliability Of Candlestick Patterns

Every candlestick pattern does not work appropriately. Their popularity has significantly decreased its reliability after they are analyzed by hedge funds and their algorithms. These well-funded players entirely rely on the execution of lightning speed so that they can trade against retail investors and traditional fund managers.

In other words, hedge fund managers use software to find participants looking for high-odds bullish or bearish outcomes. However, even after this, the reliable pattern continues to occur, thereby providing opportunities for short-term and long-term profits.

The five most powerful patterns that we are going to discuss below are capable of performing exceptionally well as they are the predecessor of price direction and momentum. Each of the candlestick patterns works within surrounding price bars so that they can predict higher and lower prices.

Spinning Top

When you trade-in the equity market or any other liquid risky asset class, you can effortlessly maximize profits by identifying any changes in the trend and then betting in the appropriate direction. It is what a spinning top Candlestick pattern does. It helps to determine any changes in the trend for the underlying. It has a small real body in which the upper and lower parts are significantly greater in length. It is a simple candlestick pattern that has the stock prices opening and closing at the nearest. It is usually formed either at a peak of an uptrend or the bottom of a downtrend.

Last Engulfing Pattern

This pattern is either identified into the top and the bottom last engulfing pattern. The price trend in the last engulfing bottom is downward. In it, the candle in the first bar is usually green in color and then changes to red when the body engulfs the previous candles’ body. You might expect the last tide to be an uptrend, but sometimes it will follow a downward trend for a while.

On the contrary, the last engulfing top is a two-line pattern having the first candle as red that is followed by green candles. It is considered to be a bullish continuation but is more of a bearish reversal pattern.

Record Session Count

When the market makes a new low, the following session makes higher highs. This pattern is known as a record session high. It usually occurs when there are eight or more previous candles with higher closes. Similarly, we record session count even as a record session low which is established after getting more than eight prior candles with lower closes.

Hammer

A Bullish Hammer, the most popular and frequently used candlestick pattern, usually occurs at the bottom of the trend and is considered a downtrend. It encompasses a small real body at the upper end of the trading range as well as a lower long shadow. It is said that the longer the lower shadow is, the more bullish the trend can be. Although the color does not matter, green is considered the most favorable one when compared with the red real body.

Engulfing Pattern

A bullish engulfing pattern usually occurs in a downtrend and is commonly a two-candle pattern. When the first candle is red in color, it recommends a bear trend. In this trend, the market opens below the closing of the previous day and slides down only after gaining at the end of the trading session. On the other hand, the second-day candle is of green color. From here, the bull starts dominating the trade.

The Candlestick chart is solely different from other chart types. With the help of this pattern, you can obtain data relationships pretty effortlessly.