8 Best Bearish Candlestick Patterns for Day Trading

Strong hands take advantage of morning break-out buyers, who are left holding the bags as the stock fades the rest of the day. As you can see from the chart, often times vwap can be a great target area (red line). Entry can be made on a close below the reversal candle with a stop set at the high. This gives the attentive trader an opportunity to capitalize by going short. It is likely that there is plenty of profit taking going into this GME Evening Star candle as FOMO (fear of missing out) retail buyers chase the stock higher.

Morning Star

This pattern signals to traders that bulls still don’t have enough to be able to reverse the bearish trend. The bearish reversal pattern consists of an up candle that is followed by a down-trending candle that engulfs the previous up candlestick. The last candle is bullish, breaching the high and close of the first candle with a large body. Candlesticks charts are significantly more unique than traditional bar and simple line charts, and once a trader understands how to read them the information shown becomes quick and easy to digest.

With these factors playing in the background, let us assume that on the next day (8th July 2014) the fall in stock gets arrested and the stock rallies towards a positive close. So, as an outcome of the 3 factors, the stock went up on the 6th day. Pick a day, pick a pattern, pull up the scanner, and take notes every time you see the pattern play out well. Ideally the next candle after the close of the Hanging Man would provide the nearest risk/reward entry at the top. Momentum is being lost as gravity, supply in this case, strangles this rocket off the morning lows.

Price direction

It’s considered to be more likely that it can signal changes in momentum, which are probably temporary. Candlesticks are so named because the rectangular shape and lines on either end resemble a candle with wicks. Each candlestick usually represents one day’s worth of price data about a stock.

1. Candlestick charts have been used for over 100 years, originating in 18th century Japanese rice trading.
2. Let’s look into the components of candlesticks next to understand how they form and what they represent.
3. A hammer candle at the low of a downside momentum signals a downward trend reversal up, suggesting the price should be rising.
4. Analyzing the formation and sequence of candlesticks helps traders gauge the momentum and overall trend of the asset.
5. In it, we see that the Apple chart formed an evening star pattern, leading to a reversal.
6. When a hammer forms at the high, following a long uptrend, it means the trend should soon turn down.

One should avoid trading during a minimal (below 1% range) or long candle (above 10% range). As we had discussed earlier, a minor variation between the OHLC figures leading to small upper and lower shadows is ok as long as it is within a reasonable limit. Here is another example (Asian Paints Ltd) where both the risk-taker, and the risk-averse trader would have been profitable. As per the ACC’s chart above, both the risk taker and the risk-averse would have been profitable in their trades.

This pattern indicates a potential shift in market sentiment from bearish to bullish. Gravestone doji candlestick pattern indicates a potential bearish trend reversal. Gravestone doji is generally formed at the top of the price chart.

1. The three black crows pattern is particularly significant when it occurs at higher price levels or after a mature advance, indicating a potential decline in prices.
2. They occur when the body of the second trading day stays entirely within the body of the previous day, and is of the opposite color.
3. When the candle forms at the start of a new trading period it is constantly changing as the price moves up and down.
4. An inverted hammer appears at the end of a downtrend and signals a potential reversal.
5. Here is another chart, Cipla Limited, where the bearish marubozu has been profitable for both risk-taker, and a risk-averse trader.
6. The piercing line pattern is a signal of a potential bullish reversal in the market.

You can learn more about candlesticks and technical analysis with IG Academy’s online courses. A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars. The harami is a subtle clue that often keeps sellers complacent until the trend slowly reverses.

The three black crows pattern is a bearish reversal pattern that is more accurate when it forms at the end of an uptrend. Understanding how candlesticks form and what information they hold is essential in mastering candlestick patterns. Now that we covered this part, let’s continue exploring the most common bullish and bearish patterns.

Bearish Candlestick

After reading this guide, you will truly be equipped with the knowledge and practical know-how to effectively identify, interpret, and utilize patterns in your trading strategy. For example, ask yourself more questions like whether or not the stock is in an uptrend, downtrend, or sideways consolidation. Be sure to consider the broader context of price action and market analysis before you take a gamble on a simple volume pattern. To candle day trading that end, let’s take five of the most common volume candlestick patterns and analyze the importance of volume in these trade signals. In the image above the BankNifty Futures chart, the purple box highlights a Dragonfly Doji pattern.

So as you can imagine, the trading signal is generated based on 1 day’s trading action. The trades based on a single candlestick pattern can be extremely profitable provided the pattern has been identified and executed correctly. Likewise, a Shooting Star is an Inverse Hammer at the top of an upward trend.

The lower chart uses colored bars, while the upper uses colored candlesticks. Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of bar charts. This 3-candle bullish candlestick pattern is a reversal pattern, meaning that it’s used to find bottoms. This 2-candle bullish candlestick pattern is a reversal pattern, meaning that it’s used to find bottoms.

Stars, Dojis, and Abandoned Babies — Powerful Reversal Strategies

A bullish engulfing candlestick pattern, in contrast to bearish engulfing, is a combination of two candlesticks, where the second candlestick is green and it engulfs the first bearish candle. Short-term timeframes, 1 minute – 30 minutes, are more vulnerable to market noise, including small corrections and intraday volatility. The longer the timeframe, the more accurately you can determine the trend and japanese candlestick charting techniques work more efficiently. This is due to the fact that candlesticks formed in shorter time frames can be just a shadow of a candlestick in a longer time frame. Doji often appears when the market is in the overbought/oversold zones, being a reversal candlestick pattern.

Entry is on confirmation of a breakdown — lower lows on the reversal candle. At the end of that trend, the stock experiences one last effort to push higher, only to reverse on itself. Candlesticks can also show the current price as they’re forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time.

Short bodies suggest that the bulls and bears are relatively balanced. For example, a short-bodied candle coming after a series of tall green candles might suggest the price is reaching a resistance level. The candlestick has a small body, with a long lower shadow and no wick at the top. A hammer, or inverted hammer, at the bottom of a downward trend, is considered a reversal signal — Suggesting the price is about to move into an upward trend. Green hammers are generally considered stronger signals than red hammers, but both are considered bullish.