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  • Galactic Advisors

Understanding Candlesticks Part-2

Updated: Jul 2, 2020

If you haven't read Part 1, read that here.


Bullish Patterns

After discussing the basics of Candlestick we would be further discussing about bullish candlestick patterns.

Bullish Hammer

This pattern occurs at the bottom of a trend or during a downtrend. It is a single candlestick pattern that has a long lower shadow and a small body at the top of its trading range.


Identification Criteria

  • The market is characterized by an existing downtrend.

  • A small body at the upper end of the trading range is observed. The colour of the body is not important.

  • The lower shadow of this candlestick is at least twice as long as the body.

  • There is (almost) no upper shadow.

Candlestick Pattern Interpretation

The Bullish Hammer appears in a downtrend, a sharp selloff is witnessed during the trade. After the decline comes to an end, the price almost returns to the high of the day. The market fails to continue on the selling side. This price movement reduces the previously bearish sentiment causing short traders to feel increasingly uneasy with their bearish positions. If the body of the Hammer is blue, then the situation looks even better for the bulls.


Buy/Stop Loss Levels

The confirmation level is defined as the top of the Hammer’s body. Prices should cross above this level for a buy signal to be initiated. The stop loss level is defined as the low of the candlestick pattern.

Bullish Belt Hold

Bullish Belt Hold is a single candlestick pattern, basically, a blue Opening Marubozu (long candlestick with no lower shadow) occurs in a downtrend. It opens at the low of the day and then rallies against the current trend in the market to close near the high.


Identification Criteria

  • The market is characterized by an existing downtrend.

  • The market gaps down and opens at its low, and closes near the high of the day.

  • A long blue body that has no lower shadow is observed.

Candlestick Pattern Interpretation

The market opens lower with a significant gap in the direction of the existing downtrend. However, soon after the market opening, sentiment changes rapidly and the market moves in the opposite direction from there on. This causes fear among traders who have short positions, leading to the covering of short positions, which further aids the rally in the market.


Buy/Stop Loss Levels

The confirmation level is defined as the last close. Prices should cross above this level for a buy signal to be generated. The stop loss level is defined as the low of the candlestick pattern.

Bullish Engulfing

This pattern is characterized by a large blue body engulfing a prior smaller red body, which appears during a downtrend. The blue body does not have to engulf the shadows of the prior candle but it totally engulfs the body.


Identification Criteria

  • The market is characterized by an existing downtrend.

  • A red body is observed on the first day.

  • The blue body is formed on the second day completely engulfing the red body of the prior day.

Candlestick Pattern Interpretation

While the market is characterized by a downtrend, selling is observed with the occurrence of a red body on the first day but with light volumes. The next day, the market opens lower. It looks as if there’s going to be a continuation of the bearish trend, however, the selling pressure loses momentum and the bulls gain control during the day. The buying force overcomes the selling force and in the end, markets managed to close above the open of the prior day.


Buy/Stop Loss Levels

The confirmation level is defined as the last close. A buy signal is generated when prices move above the second candles close. The stop loss is defined as the low of the candlestick pattern.

Bullish Harami

This pattern consists of a large red body on the first day followed by a small blue body the next day that is completely inside the range of the red body. It tends to act as a reversal pattern.


Identification Criteria

  • The market is characterized by an existing downtrend.

  • A red candlestick is observed on the first day.