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High-Probability Japanese Candlestick Patterns For Day Trading & Swing Trading (For Beginners) - YouTube
Channel: The Secret Mindset
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The human behavior in relation to money is聽
always dominated by fear; greed, and hope.聽聽
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Well, candlestick analysis will help you to聽
understand these changing psychological factors聽聽
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by showing you how buyers and聽
sellers interact with each other鈥檚.聽聽
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Candlesticks are basically a visual聽
representation of what is going on in the market.聽聽
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By looking at a candlestick, you can get聽
valuable information about the open, high,聽聽
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low and the close of price, which will聽
give you an idea about the price movement.聽
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In today鈥檚 video, you will discover how to聽
recognize the most important candlestick patterns,聽聽
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the psychology behind their formation, and what聽
do they indicate when they form in the market.聽
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First pattern is the engulfing candlestick.
This candlestick formation consists of two bodies,聽聽
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the first body being smaller than the second聽
one, in other words, the second body engulfs聽聽
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the previous one. Here we can have a bearish聽
engulfing bar and a bullish engulfing bar.聽
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In case of a bearish engulfing bar,聽聽
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this pattern tells us that sellers聽
are in control of the market.聽
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When this pattern occurs at the end of an uptrend,聽
this indicates that buyers are engulfed by sellers聽聽
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which signals a potential trend reversal.聽
Why is that? Because buyers are losing聽聽
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control of the market, and sellers are聽
trying to push the market to go down.
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The bullish engulfing bar pattern tells us that聽
the market is no longer under control of sellers,聽聽
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and buyers are gaining strength.
When a bullish engulfing candle聽聽
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forms in the context of an uptrend,聽
it indicates a continuation signal.聽
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When a bullish engulfing candle forms at the end聽
of a downtrend, it signals a potential reversal.
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This example shows clearly how the market聽
changes direction after the formation of a聽聽
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bullish engulfing pattern. The smaller聽
body that represents the selling power聽聽
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was covered by the second body聽
that represents the buying power.聽
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Very important: don鈥檛 try to trade the聽
market using this price action setup alone,聽聽
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because you will need other factors of confluence聽
to decide whether the pattern is worth trading or聽聽
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not. What I want you to do for now is to聽
get the skill of identifying bearish and聽聽
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bullish engulfing bar on your charts. This聽
is the most important step for the moment.
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Second pattern is the Doji Candlestick pattern.
Doji is one of the most important Japanese聽聽
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candlestick patterns, when this candlestick聽
forms, it tells us that the market opens聽聽
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and closes at the same price which means that聽
there is indecision between buyers and sellers,聽聽
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there is no one in control of the market.
The opening price is the same as the closing聽聽
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price, this signal means that the market聽
didn鈥檛 decide which direction will take.聽聽
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A doji could anticipate a reversal, or聽
it can be a sign of consolidation.
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This example shows how the聽
market changed direction聽聽
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after the formation of the Doji candlestick.
The market was trending up, meaning that buyers聽聽
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had more strength. The formation of the Doji聽
candlestick indicates that buyers are unable聽聽
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to keep price higher, and sellers push prices聽
back to the opening price. This is an indication聽聽
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that a trend reversal is might be on the cards.
However, always remember that a Doji indicates聽聽
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indecision in the market, and you will聽
often find it during periods of resting聽聽
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after big moves higher or lower.
Third pattern is the morning star.聽
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The morning star pattern is considered聽
as a bullish reversal pattern,聽聽
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it often occurs at the bottom of a downtrend聽
and it consists of three candlesticks:聽
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-The first candlestick is bearish which聽
indicates that sellers are still in charge.聽
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-The second candle is a small one which聽
represents that sellers are in control,聽聽
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but they don鈥檛 push the market much lower,聽
and this candle can be bullish or bearish.聽
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-The third candle is a bullish candlestick聽
that gapped up on the open and closed above the聽聽
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midpoint of the candle, and this candlestick聽
holds a significant trend reversal signal.聽
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The morning star pattern shows us how buyers聽
took control of the market from sellers.聽
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When this pattern occurs at the bottom聽
of downtrend near a support level,聽聽
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it signals a potential trend reversal.
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Here, the pattern occurred during an obvious聽
bearish trend. The first candle confirmed聽聽
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the seller鈥檚 domination, and the second聽
one produces indecision in the market.聽
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Basically, the second candle indicated that聽
sellers were struggling to push the market lower.聽聽
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The third bullish candle indicates聽
that buyers took control from sellers,聽聽
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and the market is likely to move upward.
Next is the evening star pattern聽
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The evening star pattern is considered聽
as a bearish reversal pattern that聽聽
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usually occurs at the top of an uptrend.
The pattern also consists of three candlesticks:聽
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-The first candle is a bullish candle
-The second candle is a small candlestick,聽聽
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it can be bullish or bearish
-The third candle is a large bearish candle.聽聽
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In general, the evening star pattern is the聽
bearish version of the morning star pattern.
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Here, the market was trending up, the first candle聽
in the pattern indicating a trend continuation.聽聽
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The second one is a short candle indicating聽
price consolidation and indecision.聽聽
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In other words, the trend that created the first聽
long bullish candlestick is losing momentum.聽
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The final candlestick moving lower than聽
the previous candlestick indicates a聽聽
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potential beginning of a new down move.
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Another important candlestick聽
formation is the hammer.聽
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The Hammer candlestick is created when the聽
open high and close are roughly the same price;聽聽
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it is also characterized by a long lower shadow聽
that indicates a bullish rejection from buyers聽聽
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and their intention to push the market higher.聽
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The hammer is a reversal candlestick pattern聽
when it occurs at the bottom of a downtrend.聽
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This candle forms when sellers push聽
the market lower after the open,聽聽
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but they get rejected by buyers so the market聽
closes higher than the lowest price.
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Here the market was trending down,聽
and the formation of the hammer聽聽
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represented a significant reversal pattern.
The long shadow represents the high buying聽聽
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pressure from this point. Sellers were trying聽
to push the market lower, but at that level,聽聽
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the buying pressure was more聽
powerful than the selling pressure聽聽
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which resulted in a price reversal.
The most important to understand is聽聽
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the psychology behind the formation of this聽
pattern. If you can understand how and why聽聽
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it was created, you will be able to anticipate聽
the market direction with a higher accuracy.
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The shooting star is another important聽
reversal candlestick pattern.聽
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The shooting formation is聽
formed when the open low,聽聽
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and close are roughly the same price. This聽
candle is characterized by a small body聽聽
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and a long upper shadow. It鈥檚 basically聽
the bearish version of the hammer.聽聽
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Very important: the shadow of the shooting star聽
should be twice the length of the real body.
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This example shows a perfect shooting star with聽
a real small body and an upper long shadow.聽聽
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When this pattern occurs in an uptrend;聽
it indicates a bearish reversal signal.聽
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The psychology behind the formation聽
of this pattern is that buyers tried聽聽
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to push the market higher, but they聽
got rejected by the selling pressure.聽
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When this candlestick forms聽
near a key resistance level,聽聽
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it should be taken as a high probability setup.
Another important formation is the inside bar.聽
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The inside bar is a two bar candlestick聽
pattern, which indicates price consolidation.聽聽
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In order to confirm this pattern you need to see聽
a candle on the chart, which is fully contained聽聽
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within the previous bar. In this manner, the聽
inside bar candle should have a higher low聽聽
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and a lower high than the previous candle.
This candlestick is considered a bearish聽聽
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reversal signal when it occurs at the top of聽
an uptrend, and it is a bullish signal when聽聽
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it occurs at the bottom of a downtrend.
In this example, you can see how the trend聽聽
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direction changes after the inside bar formation.聽
The bullish inside bar pattern occurred at the聽聽
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bottom of a downtrend. Here, sellers were pushing聽
the market lower, price starts consolidating,聽聽
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and this indicates that the selling power聽
is no longer in control of the market.
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The bearish inside bar is the opposite聽
of the bullish one, this one occurring聽聽
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at the top of an uptrend indicating that聽
buyer鈥檚 domination is losing strength聽聽
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and the beginning of a downtrend is possible.
For me, since the inside candle has a lower high聽聽
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and a higher low than the previous candlestick聽
on the chart, this indicates consolidation. Bulls聽聽
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cannot manage to create a higher high and at the聽
same time the bears fail to create a lower low.聽聽
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As such, there is not sufficient buying or selling聽
pressure to break the previous bar鈥檚 high or low.聽
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When this candlestick pattern happens during聽
an uptrend or a downtrend, it鈥檚 probably聽聽
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better to see it as a continuation pattern which聽
offers a good opportunity to join the trend.
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Tweezer top or bottom is another useful pattern.聽
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Tweezers are reversal candlestick patterns that聽
signal a potential change in the price direction.聽
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The tweezer bottom candlestick pattern is a聽
bullish reversal pattern that can be spotted聽聽
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at the bottom of a downtrend. It consists of聽
two candles, where the first candle is in line聽聽
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with the bearish trend, while the second candle聽
reflects more bullish market sentiment as the聽聽
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price moves higher, in the opposite direction.
If this price action happens near a key support聽聽
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level, it indicates that a bullish聽
reversal is likely to happen.
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The tweezer top candlestick pattern is of the same聽
structure as the tweezer bottom, except for the聽聽
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fact that it happens at the end of an uptrend, and聽
therefore, it is a bearish reversal pattern. The聽聽
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first candle is bullish, and it continues in the聽
same direction, while the second bearish candle聽聽
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indicates that the trend may be changing soon.
The tweezers top occurs when buyers push the聽聽
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price higher, this gave us the impression聽
that the market is still going up, but sellers聽聽
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surprised buyers by pushing the market lower聽
and close down the open of the bullish candle.
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These 2 patterns signal price reversals聽
and we can trade them more efficient聽聽
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if we can combine them with other technical tools.
Both the bottom and top tweezers are only valid聽聽
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when they occur during uptrends and downtrends.聽
Their appearance during choppy trading conditions聽聽
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is practically meaningless, and it signals the聽
market indecision to move in either direction.
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Candlesticks are flexible, but they shouldn鈥檛聽
be used alone in your analysis. You don鈥檛 open聽聽
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a buy position every time you spot a bullish聽
engulfing candle and you don鈥檛 short the market聽聽
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every time you see a shooting star. Candlestick聽
patterns are best used in combination with support聽聽
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and resistance, trend lines, and other technical聽
tools such as the moving averages or pivot points.聽聽
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Also, the time frame is very important. But we鈥檒l聽
discuss about these concepts in future videos.聽
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If you found value and learned something new,聽
leave us a like to show your support, subscribe聽聽
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