Download the most powerful candlestick chart patterns PDF here from sgx-nifty! Previously, we discussed the most profitable candlestick patterns PDF in which we talked about various patterns in detail with real-chart examples. In this article, we will talk about the most profitable candlestick chart patterns and understand how to spot these chart patterns in real-time charts using various indicators.
For beginners, let us talk about the basic difference between Candlestick Patterns and Candlestick Chart Patterns.
How are “Candlestick Chart Patterns” Different From “Candlestick Patterns”?
Both the terms “Candlestick Chart Patterns” and “Candlestick Patterns” are often used interchangeably among traders. However, there is a subtle difference between them. Let us understand them;
| Candlestick Patterns | Candlestick Chart Patterns |
|---|---|
| These patterns form from one or more individual candlesticks. | Such patterns form from a group of candlesticks. |
| These patterns describe the behavior of the market in a short span of time. | These patterns describe the behavior of the market longer period. |
| Examples of such patterns include Doji, Hammer, Spinning Top, etc. | Examples of such patterns include Double Top, Triangle Patterns, Head and Shoulder, etc |
| It represents a focussed analysis | It represents a broader analysis of the market trends. |
Now that we have the clarification over these two terms. Let us understand how these chart patterns evolved.
Evolution of Candlestick Chart Patterns
Candlesticks have their history back to the 18th century when a Rice Trader Munehisa Homma tracked the data of the rice market to predict the likely prices of rice. However, over time these techniques are refined and modulated to adjust to today’s market.
Traders combined various candlestick patterns with indicators such as trend lines, support and resistance levels, and technical indicators. This practice led to the development of chart patterns such as Triangle Patterns, head and shoulder patterns, double tops, triple tops, flag patterns, etc.
Significance of Having Candlestick Chart Patterns PDF
Price patterns are easily identifiable with the help of curves and lines thus making it quite useful to have the knowledge of trendlines and how to draw them. So without any further adieu let us jump straight to it!
Most Accurate Candlestick Chart Patterns PDF Download
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All Candlestick Chart Patterns
As we have discussed in the previous post there are mainly two types of patterns, Continuation and Reversal. These chart patterns also fall into this category. There are a total of 75+ recognized patterns but we will be discussing the most powerful and profitable candlestick chart patterns, which eventually serve as basics of complex chart patterns.
Overview
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All Candlestick Chart Patterns Explained
We will discuss all the patterns with their preview and examples from real-time charts. However, if you want to jump to any specific pattern, please refer to the Table of Contents mentioned at the start of this article.
A trendline is a straight line drawn on a chart that connects two or more price points.
Pennants Candlestick Chart Patterns
Pennants type of continuation candlestick chart patterns that are formed with the help of 2 trendlines. One trendline is drawn as per downtrend and another as per uptrend.
To identify this type of pattern, look for a flagpole, this can be identified as a sign of strong price movement in either direction.
After this look for a Pennant shape i.e. a phase where the price starts converging.
Once you have located these two features, wait for the breakout and then set your target price as per the height of the flag pole from the breakout point
Don’t forget to place your stop loss, it should be somewhere below the lower trendline for a bullish pennant or above the upper trendline for a bearish pennant.
In a continuous chart, bearish and bullish pennants should look like this:
Flags Candlestick Chart Patterns
Flags are also continuation patterns that are formed with the help of two parallel trendlines. A flag with an upward slope is called a Bullish, similarly, when the slope is downward it is called Bearish. Flags are basic patterns that you should memorize if you are reading all candlestick chart patterns pdf!
A flagpole is generally a break in the pattern of the graph. It represents a strong and sharp price movement in either direction.
A flagpole occurs after a strong trend, reversing the market for a while, and then breaking occurs, and consequently, the market continues to move in its original direction.
When you locate a flagpole on a trading chart, identify its nature. Look for its breakout point, it is the point where you want to enter. Set your target price after measuring the height of the flagpole. Also, pace stop loss to the opposite end of the flag!
Wedges
Wedges are pretty much similar to the pennants. Like Pennants, wedges chart patterns are formed with 2 trendlines. But in Pennenants you must have observed that the trendlines are in the opposite direction but here in Wedges, trendlines are moving in the same direction and converging at last.
Generally, there are two types of wedges, The first is the “rising wedge” which has higher highs and higher lows and the slope of highs is steeper than lows.
Another is the “falling wedge” which has lower lows and lower highs. The slope of lows is steeper than the highs.
When you observe a Wedge, confirm it by spotting at least 2 touchpoints on each trendline. Monitor the breakdown point and when the breakout happens, enter the trade with your target price (it should be the height of the wedge at its widest point). Wedges are quite important patterns among our most profitable candlestick chart patterns pdf!
Ascending Triangles
Ascending Triangles are indicators of a probable upward breakout. It is formed by a resistance line and a supporting line.
Identification of ascending triangles is when you will draw a resistance line. It will connect multiple highs at almost the same level.
Now the support line will join the higher lows which is an indicator that buyers are pushing the prices.
Since both the lines converge, they make a type of triangle (ascending triangle in this case).
During this pattern, traders shall wait for the breakout (confirm when the price breaks above the resistance line). Here in this pattern, you shall set the target price as per the height of the triangle at its widest point and the stop loss shall be just below the support line.
Triangles are one of the reliable patterns among All candlestick chart patterns pdf!
Descending Triangles
Descending Triangles are simply the exact opposite of the pattern that we discussed above. It is formed by a horizontal support line and a downward resistance line.
In this pattern, the horizontal line will connect the low prices. The resistance line will connect the lower highs, which means that the sellers are gradually pushing the price further low.
As the pattern evolves, the prices will move in a narrow range thus building pressure points for the breakout.
Generally, when this type of pattern appears, the target price should be set according to the height of the triangle at its widest point. Project this height downward the breakout point.
Similarly, the stop loss should be just above the resistance line!
Descending triangles are usually good indicators of a probable downward breakout.
Symmetrical Triangles
Symmetrical Triangles as their names suggest, have symmetrical sides. Imagine this as an Isosceles triangle whose both sides are at equal inclination. There is no noticeable general upward or downward trend but a converging trend indicating a price break.
In this pattern, you will not observe any horizontal support line. Both the trendlines in this pattern are at a certain slope.
As the triangle develops, it indicates lessened trading activity. Thus volume usually decreases over this time. It could last from a few weeks to several months.
Resultantly, when the price breakout happens, it results in a significant increase in volume.
Usually, the longer the duration of the triangle, the more increase in volume is seen in the market. After the identification of the direction of market break i.e. whether it is bearish or bullish, traders should place the trade.
In this pattern too, the target and stop loss are adjusted as explained in the previous two candlestick chart patterns. The target Price is according to the height of the triangle when it is widest and stop loss lies just outside the opposite trendline.
Cup and Handles
Cup and Handle is a kind of bullish continuation candlestick pattern which indicates that there is a pause in the upward trend but it will continue its upward trend after the pattern is completed.
To spot this type of pattern, look for a cup-looking formation where the chart is encompassing a “U” shape, not the “V” shape.
Both high ends of the cup should be of almost the same height.
Now comes the handle. The handle is formed on the right side of the cup. If you notice, you will observe that the cup is somewhat similar to the flag pattern or pennant pattern.
Once this handle pattern is completed you can expect a breakout. As mentioned earlier, the usual breakout trend is upward. So you can set a target price as per the height of the cup i.e. distance from the bottom of the cup to the resistance level.
For stop loss, ideally, it should be placed below the support level within the handle.
Head and Shoulders (Most Reliable Among Candlestick Chart Patterns PDF)
Head and Shoulders pattern is used to identify a bullish-to-bearish trend reversal. According to Investopedia, this pattern is considered one of the most reliable patterns for the identification of market behavior.
To locate this pattern, you will notice that after a bullish trend, prices decline and the chart shows a dip.
Then prices rise again to form a second high, above the first peak, and then again fall.
Finally, for the third time, prices rise again but this time only up to the level of the first high.
The line connecting the first and second troughs is called as neckline.
As discussed earlier, this pattern shows a bearish reversal. If you want to enter a trade after this trend, then measure the distance of the head from the neckline and subtract this distance from the neckline to project the limit of the bearish reversal trend.
Inverse Head & Shoulders
As the name suggests, it is exactly the inverse of what we discussed in the previous section. Simply imagine a head and shoulders pattern but in an inverse manner.
To locate this pattern, look for a downward trend after which prices are rising again. Then, the second trough will be deeper than the first one. Finally, the third dip will match the trough of the first dip.
Once the final trough is made, the prices will go upward showing a bullish reversal pattern.
In this pattern too, if you want to trade then, your entry point should be above the neckline. For the safer side, many traders do this practice they wait for a price breakout from the neckline and then enter the trade.
And for stop loss, it should be ideally below the right shoulder.
Double Top and Bottom Chart Patterns
Double Top and Bottom patterns resemble the English letter M or W. While observing this pattern it is important to supplement this pattern with other indicators because such rounding patterns can lead to fakeouts!
Double Top Pattern
A double top pattern makes a shape resembling to English letter “M.” Do checkout other supporting patterns for this among our candlestick chart patterns pdf!
To identify this pattern look for two consecutive rounding tops. The first rounding top will indicate the making of an inverted U pattern.
Also, note that during this pattern when the second rounding top will occur, its top should be below the first top.
Double Top Patterns are the indicators that investors are looking for final profit from a bullish trend. However, this pattern leads to bearish reversal often. Again, trading is like a battle between the buyers and sellers of the market.
Double Bottom Pattern
In the Double Bottom Pattern, you will notice the formation of the letter “W.”
To identify this pattern, you will notice the formation of a rounding bottom (such as U). After which there will be another rounding bottom whose trough will be above the trough of the first rounding bottom.
A double bottom pattern is an indication of a bullish reversal, however, before the reversal, the bears of the market are seeking profit before the reversal thus making a double bottom pattern.
Triple Tops and Bottoms Chart Patterns
Triple Tops and bottoms are the extension of what we saw in the previous chart pattern. In the previous pattern, we observed double tops and bottoms, here these points get extended further on!
Triple Tops Candlestick Chart Patterns
A triple top is formed when the price tries three times above the resistance area but fails and bounces up back.
To identify this pattern, you will notice three peaks.
The first peak rises to the resistance level but falls. After which, another peak will rise to the same resistance level but fall again.
Finally, the third peak will rise again to the same resistance level but also fail this time.
Here the support line will be the line formed after joining the lows of all these peaks. To trade in this chart pattern, you should look for an entry point below the support level. Stop loss should be placed above the third peak so that if the pattern fails, you can prevent your losses.
Triple Bottoms Candlestick Chart Patterns
Triple bottoms are the inverse of Triple Tops. Such Chart Patterns are an indication of bullish reversals.
To notice this pattern, there will be 3 continuous troughs. In all three troughs, the prices fall to the almost same support level.
Here the resistance line will be the line formed by joining the two high formed in between.
Once this chart pattern is confirmed, you can enter a trade above the resistance level and place a stop loss around the support level.
Gaps Candlestick Chart Patterns
This Chart pattern can provide a good insight into the current nature of the market. Gaps are generally defined as the time period in which no trading activity takes place. There are various implications of the gaps and there are different types of gaps which are discussed below!
In the candlestick chart patterns pdf, gaps hold great significance due to their nature of helping traders to check whether their strategy is going in the right direction or not!
Common Gaps
These gaps are found in normal trading hours. There is no specific reason for such gaps such as any important news or event.
Often these gaps get filled quickly thus not providing any significant insights.
Breakaway Gaps
These gaps occur when there is an end of a price pattern and a possible new trend might begin.
Unlike “common gaps,” these represent significant changes in the sentiment of the market.
These are good indicators of new trends and do not get filled quickly.
Runaway Gaps
Such type of gaps occur in the middle of a strong trend. These are the indicators that the current trend will persist even after the gap.
Since these gaps show the continuation of the trend, these gaps can also help to measure the length of the current trend.
Exhaustion Gaps
Exhaustion Gaps usually occur near the end of the trend showing a final continuation before the end of the trend and the occurrence of a new trend.
Often, after exhaustion gaps, price reversals are expected.
What We Learnt So Far About Candlestick Chart Patterns PDF?
Till now we have covered the most powerful candlestick chart patterns of the pdf. We have understood the significance of these candlestick chart patterns. We have also learned about the difference between “Candlestick Chart Patterns” and “Candlestick Patterns.”
More or less market always remains volatile, and so do the tricks associated with it. Treat Trading as if a business where decisions are made analytically not emotionally!
-Spectre
In order to gain mastery in these patterns you need to practice these patterns continuously. These patterns may look simpler but during a real chart, these might get confusing thus leading to wrong decisions. And we all know, that just one wrong decision is enough to ruin your all-day trading strategy.
Download All Candlestick Chart Patterns PDF
Wrap Up
However we have covered all the patterns along with the example but it is important to note here that the market contains a lot of volatility, thus there is risk associated every time with it. Also, all these chart patterns must be supplemented by candlestick patterns so that you can strategize more clearly. Along with these patterns supplement your knowledge with the latest economic news and understand basic concepts such as budget allocation etc.
A clear understanding of the basics of the market will lead to more analytical decisions while trading.