Stock traders or any other individuals involved in financial markets find it profitable and successful when using candlesticks. However, for this to happen, your selection options need to be in a position to add great value. Candlesticks act as a great visual aid to help you know the price effects within a certain time frame. Besides, they enable you to know the price action and current market mood towards a particular stock.
The significance of these candlesticks is that they show the area between the close and open prices. At times you will realize that the candle forms with low open and high close ranges. Thin candles that have less solid bodies will usually have variation, and arise when the price seems volatile. Many charting avenues accept candles and here are the four most powerful candlesticks patterns to boost profit in 2020.
Doji candles refer to patterns that show indecision in the stock price action. You will realize that they form in the areas where bears and bulls start their battle on the direction to take. In this candlestick, it has a small body and the close seems to be adjacent to the open price. That means you still can have long wicks on the high and low ends.
Doji patterns showcase indecision, uncertainty, or awaiting control by the bulls and bears. If a stock breaks far beyond the candlestick, you will experience a downward or upward price movement. However, this is not an ideal entry-level candlestick because the changes happen without a heads up.
Bullish Engulfing Candlestick
This candlestick arises when the stock price moves beyond the previous high and low ranges. The movement is termed as engulfing because it occupies the region beyond the high and low limits. When this happens, a trader knows that the price is significantly low, and they can initiate a move of acquiring a volume of stocks. In this candlestick, the signal indicates that there is an upward move awaiting, or the trend can change anytime.
Bearish Engulfing Candlestick
Bearish engulfing candlestick pattern is the opposite of bullish engulfing patterns. Here, the bearish candle patterns will move towards the levels way above the high end of the previous day. After that, the previous day low will be broken because the selling price will decrease substantially. Also, note that the trends happen within or at the tops of a particular trend.
Bearish candlesticks patterns help you know when there is a drop in stock price and a subsequent decrease in trend changes. This helps you make a wise trading decision.
Hammer Reversal Candlestick
Hammer candlesticks seem interesting. Just from the word, these patterns showcase when there is a sharp rejection. Market participants reject the resistance initiating a reversal candlestick. In the patterns, a lowered price can find huge support volume because the bulls take control by closing the candles around the opening level.
Surprisingly, the momentum seems to continue overtime. That means it is a good trading pattern for investors. It is referred to as the ‘hammer’ because the patterns follow either direction in a hammer shape.
Candlestick Pattern Reliability
Candlestick patterns are ideal technical tools for trading, and people have used them for centuries to help in predicting the price direction. Due to the versatility in the patterns, the results obtained are also different. Other than the patterns above, others like three-line strikes, evening star and black gapping have been used in determining the momentum and direction of the price.
Note that the efficiency of a signal will depend on how you translate it and the time you take to initiate the action. Most patterns will work very well and will be a nightmare for those struggling to understand them. Understanding means additional profits. You need to invest your time in learning candlesticks and the role they play in trading.
Investing with candlesticks is the best trading decision you can make in 2020. However, you need to understand the trading patterns adequately to initiate the right move. When using them, your focus should be on the pattern position and the resistance or support. This helps you acquire an idea of what direction or change you need to make. That’s why learning candlesticks through trading courses is a noble move.