6 Candlestick Patterns For Day Traders

Analyzing the market and more specifically its ups and downs is a great way to become better at trading. Since the emergence of trading, traders have invented different ways (often complex ones) of analyzing the markets and gaining an edge in order to make some profits. Candlestick patterns are a tool many traders implement, and in this article were going to talk about what they are, how they work and their effectiveness.

Lets dive in.

Key takeaways:

Its not as complicated as it sounds.

The first use of candlestick charts was in Japan in the 18th century when finance noticed that there was a correlation between the supply and demand and price of rice, and as you might have guessed consumers emotions affect the changes in price.

In practice, candlestick charts represent the level of traders' sentiment, emotional thinking,and decision making in the market. Candlestick charts help traders to predict short-term price changes and make their buying and selling decisions accordingly.

Each candlestick has four essential parts:

What do these terms tell us about online trading ?

Each day starts with the open price and closes with, you guessed it, the close price. But, during the day the highest and lowest price might differ from the close price and open price, so its vital to also know the high and low price of each day.

You might have seen one of those charts; most of the time these candlesticks are either red or green. If they are red it means that the close price was lower than the open price.

There are various candlestick patterns that experts argue lead to specific results most of the time (whether the market will have an upturn or a downturn).

The price of a product in the market is dynamic, meaning that it either moves up or down.

What is a candlestick pattern then?

Like we said, the price moves up and down; but many times the price tends to create a series of ups and downs which helps traders predict future price movements based on these patterns.

However, its important to mention that even though these patterns can help you predict future movements, this doesnt mean that these price shifts and directions are guaranteed. In other words, theres not a single pattern that can guarantee 100% that the price of an asset will go either up or down.

Candlestick Patterns are divided into two categories:

Lets go over these patterns one by one to help you get a better understanding of how candlestick patterns work.

The pattern in this case is characterized by a streak of days where the price increases to a point that the supply is higher than the demand and as a result the price starts dropping.

The bullish engulfing pattern is pretty much the opposite of the bearish engulfing pattern where the demand is higher than the supply and the price inevitably goes up.

Lets talk about the pros and cons of the bearish and bullish engulfing pattern.

Pros

Cons

A bullish harami pattern starts with days of increase in price and as the days go on, the percentage of increase slows down. Typically, this means that buyers become hesitant to trade this specific asset. The most important element of this pattern is to see what happens next; if the price starts declining the patterns prediction is that it will continue to go down. On the other hand, if the price rises, it will keep increasing.

Similar to the engulfing pattern, the bearish harami pattern is the opposite of bullish harami. How does it work then? Normally, theres a number of consecutive days that the price drops and traders become hesitant to sell. This often leads to a small increase in price. What might happen next? Will the price go up? If so, the price is going to continue this way. But if the price goes down (you guessed it), its most likely the price will drop.

Here are the pros and cons of the bullish and bearish harami patterns:

Pros

Cons