Understanding candlestick patterns as essential signals for traders

Indian benchmarks extended gains and closed higher on November 25, building on their strongest session since early June recorded in the previous session. The ruling alliance's victory in the Maharashtra state election over the weekend lifted sentiment, while broad-based sectoral gains and resilience in Asian and US markets further fueled the rally. At close, the Sensex was up 993 points or 1.3 percent at 80,110, and the Nifty was up 315 points at 24,222. About 2,541 shares advanced, 1,347 shares declined, and 148 shares were unchanged.

Are you a trader looking to understand changes in price movement and trends? This article offers an excellent solution.

• The body represents the open-to-close range.
• The shadow indicates the intra-day high and low.
• The color reveals the direction of the market movement.

• A red or black body indicates a price decrease.
• A green or white body represents a price increase.

HammerA bullish reversal pattern that indicates a potential uptrend. The hammer candlestick has a short body and a wick or shadow twice the length of the bottom. If the high and close are the same, it creates a bullish trend pattern, but when the open and high are the same, it is considered less bullish but still displays a possible bullish trend.

Bullish EngulfingTwo candlesticks form the bullish engulfing pattern. The first is short with a red body that is completely engulfed by a larger green or white candlestick. This pattern signifies a potential trend reversal, and the larger the size of the engulfing candlestick, the more essential it is to the analysis.

Morning StarThis pattern, considered a sign of hope in a bleak market downtrend, is formed by three candlesticks: one short candlestick positioned between a long green and a long red candle. This indicates that the selling pressure of the previous day is subsiding, and a potential bullish reversal may occur.

Hanging ManThe bearish equivalent of a hammer, which forms at the end of an uptrend. It has the same shape as the hammer, with a lower shadow usually twice the length of the body, indicating that there was a high sell-off during the day, but the price managed to go up again. Even if the price goes up again, the large sell-off is seen as a sign that the bulls are losing control of the market.

Bearish EngulfingOccurring at the end of an uptrend, this pattern has a smaller green candle engulfed by a long red candle, signifying a potential downturn in the market. The lower the second candle goes, the more significant the price reversal will be.

Three Black CrowsA common reversal indicator in an uptrend, formed by three black candlesticks with long bodies, with each closing price lower than the opening price. This shows the lack of buying conviction in the market, which allowed bears to push prices lower.

Falling Three MethodsA bearish pattern formed by a long red body followed by three small green bodies and another red body. The small green candles are within the range of the bearish bodies, indicating that traders cannot reverse the trend, so there will be a continuation.

Spinning TopA short body centered between 2 shadows, indicating indecision in the market. Bulls made the prices go higher, while bears made them go lower. Whatever trend was present before will continue, often as a period of rest after a significant uptrend or downtrend.

DojiA Doji signifies struggles between buyers and sellers. When the market opens and closes at almost the same price point, a candlestick resembling a cross or plus sign is displayed, indicating market indecision.

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