Some say the power of candlesticks partially stems from a self-fulfilling prophecy. The tremendous volume of traders who utilize candlestick charts translate into predictable market movements based upon certain formations. The truth is however thats a bunch of BS – the reason they work is because they pinpoint the underlying emotions of the market as a whole.
The following top 5 five candlestick formations are the most popular among technical analysts, and, therefore, have the highest probability of producing the most reliable and consistent results.
5 Most Consistent Candlestick Patterns
When is comes to the 5 Most Consistent Candlestick Patterns these take the cake…
Doji Formations
Doji formations, such as dragonfly and tombstone, are widely regarded as strong indicators of a probable reverse. They both consist of a single horizontal line indicating that both the closing and opening prices were identical. As a result, there is no body, and the wick is either rising for a gravestone Doji or falling for a dragonfly Doji. The gravestone pattern implies depleted bullish sentiment and, consequently, a downward movement will subsequently appear. A dragonfly pattern is naturally an opposite bullish type of signal.
Piercing and Cloud Cover Formations
Both of these formations are basically mirror images of each other and represent reversal signal patterns. The piercing pattern consists of a long black candlestick followed by a long white one that closes over halfway up the first candlestick. The implication is that market participants, who sold on the first day in anticipation of a continuing downward movement, had to cover their shorts, and, as a result, prices rose and will likely continue in that direction. The cloud cover pattern, on the other hand, is a bearish indicator for similar reasons and is formed by a long white candlestick followed by a long black one that closes over halfway below the first candlestick.
Engulfing Formations
This pattern and the doji candlestick are likely top on the list of the Top 5 Most Consistent Candlestick Patterns. The bullish engulfing formation consists of a short blackbody candlestick followed by a taller white bodied candlestick that begins below and ends above the previous day’s trading range.This means prices on the second day opened lower than the first and closed higher. This is a highly bullish formation and indicates a long position should be considered.
A bearish engulfing pattern would be the opposite with a short white bodied candlestick followed by a longer black bodied candlestick. Here the signal is bearish and consideration should be made for selling short.
Hammer and Shooting Star Formations
These patterns are basically short candles with one long wick. For the hammer, the wick points downwards, whereas for the shooting star, it points upwards. The hammer is considered bullish in that price action clearly was able to reverse all selling sentiment, while the shooting star would be viewed as bearish for a similar reasoning logic.
Harami Formations
A bullish Harami consists of a long black candlestick with a close near the low, followed on the next day by a short white candlestick. This indicator is interpreted as signaling that selling pressure dominated the market on the first day, but was halted on the second, suggesting that upward movement in prices will continue. A bearish Harami has the exact opposite structure and interpretation.
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This three-peak formation is named for its resemblance to a head and two shoulders. The center peak (head) protrudes above the remaining two peaks (shoulders), which are set at or close to identical levels. The common line of support for all three peaks, which does not have to be a horizontal line, is known as the Neckline. The final downward penetration of the neckline confirms the start of a new downward trend.
The inverse Head and Shoulder pattern follows the same model.
