1. Reversal Patterns
Reversal patterns signal potential trend changes:
- Hammer & Hanging Man: Small body, long lower wick; signals bullish (hammer) or bearish (hanging man) reversal.
- Engulfing Patterns: Large candle completely engulfs previous candle; bullish or bearish depending on color.
- Doji: Open and close are nearly equal; market indecision, often precedes reversal.
2. Continuation Patterns
These patterns suggest the trend will continue:
- Rising/Falling Three Methods: Small candles within a larger candle trend, confirming continuation.
- Marubozu: Long body candles without wicks; strong trend confirmation.
3. Combining Patterns with Trend
Patterns are more reliable when considered with trend context:
- Use moving averages or trendlines to confirm signals.
- Higher timeframes give stronger signals.
Key Takeaways
- Recognize reversal vs continuation patterns for smarter trades.
- Combine patterns with trend analysis to improve accuracy.
- Practice spotting these patterns on charts for mastery.