What are turning or reversal patterns?
Although this is something that we will cover in more detail and depth in more advanced DTP courses, this article serves as an introduction to Forex Reversal or Reversal patterns. We will see several types of patterns or Japanese candlesticks that will help us define the end or continuation of a bullish or bearish trend in our trading.
For patterns to be reversal or reversal patterns, there must be a prior trend for there to be a reversal and not a continuation in price/market. A bullish reversal requires a prior downtrend and a bearish reversal requires a prior uptrend. The direction of the trend can be determined using trend lines, moving averages, and other aspects of technical analysis. We can also look at the following Japanese candles that we can consider behavior patterns in trading.
Japanese candlestick hammer and hanging man
The hammer and hanging man candlesticks that we can see on a Forex candlestick chart look exactly the same, but have a different pattern meaning depending on the latest price movement. Both have small bodies (black or white), long and short lower shadows, or no upper shadows. Let’s see these Japanese candles in the following image, they can represent reversal or reversal patterns.
The hammer candlestick is one of the bullish reversal or reversal patterns that forms during a downtrend. It is due to that name because the market is hammering to the bottom. We can see this in candlestick charts in all Stock, Futures or Forex markets.
When the price is falling, hammer candlesticks indicate that the bottom is near and the price will start to rise again. It is a very important pattern. The long lower shadow of the candle indicates that the sellers pushed prices lower, but the buyers were able to overcome this selling pressure and the price closed near the open.
Just because you see a hammer candlestick in a downtrend shape does not mean that you automatically open a long position! Certainty of bullish confirmation in our analysis is needed before pulling the trigger. A good example of a confirmation would be waiting for a white candlestick to close above the open of the candlestick on the left side of the Japanese hammer candlestick. Look at the Japanese candlestick recognition criteria:
Recognition criteria:
– The long shadow of the candle is about two or three times the real body.
– Little or no upper shadow.
– The real body is at the upper end of the trading range.
– The color of the actual body is not important.
The hanging man candlestick is a bearish market reversal pattern that can also mark a top or strong resistance level. which indicates that the market will not continue with continuation. When the market price is rising, the formation of a hanging man candlestick indicates that the sellers are beginning to outperform the buyers in the market. The long lower shadow shows that sellers pushed prices lower during the session. The buyers were able to overcome the selling pressure and the price returned near the open. This should be an alarm signal, since it tells us that there are no buyers to give the necessary impetus to continue raising the price, that is, there is no continuation of that trend in the market.
Recognition criteria:
– A long lower shadow that is about two or three times the real body.
– Little or no upper shadow.
– The real body is at the upper end of the trading range.
– The color of the body is not important, although a black body is more bearish than a black body.
white body.
We can look at the following Japanese candles that we can consider behavior patterns in trading.
Japanese Candle Inverted Hammer and Shooting Star
The inverted hammer candlestick and the shooting star candlestick are also identical. This is something that is seen very frequently when trading Forex. The only difference between them is whether you are in an uptrend or downtrend. Both candlesticks have small bodies (filled or empty), long upper shadows, little or no lower shadows. Let’s see these Japanese candles in the following image, they can represent reversal or reversal patterns.
The inverted hammer Japanese candlestick pattern occurs when prices have been falling, suggesting the possibility of a change. Its long upper shadow shows that buyers tried to push the price into an uptrend. However, the sellers saw that the buyers were doing this, said “hell no” and started to push the price down. Fortunately, buyers managed to contain the selling pressure and price closed near the open. Since sellers were unable to close at a lower price, this is a good indication that everyone who wanted to sell has already sold. And if there are no more vendors, who is left? Buyers.
The shooting star candlestick pattern is a well-known pattern in bearish forex trading that looks identical to the inverted hammer, but occurs when the price/market has been rising. Its shape indicates that the price opened at the low price, rallied, but pulled back (correction) to the bottom. This means that the buyers tried to push the price higher, but the sellers came and contained the pressure by driving the price down. This is a clear bearish pattern as there are no more buyers left as they have all been contained. This pattern is very important to keep in mind in our trading. These patterns must be very clear in our analysis while trading, whether when we operate any market such as Stocks, Futures or Forex.
You can see everything related to patterns, Japanese candlesticks, uptrends, downtrends, support, resistance in more detail in our Basic Trading Course.
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