Bullish Candlestick Patterns – some of the most reliable indicators of uptrend

About Candlestick Patterns

Candlestick patterns, as their name suggests, consist of formations that appear on candlestick charts. According to their direction, they could be classified into three main categories; bullish candlestick patterns, bearish candlestick patterns, and continuation candlestick patterns.

These patterns are relatively easy to understand. And traders can use them to understand factors such as market emotions, volume, and to predict short-term changes in the market.

Bullish candlestick patterns, in particular, could be used to identify an uptrend in the market. These patterns form with a few candlesticks, and as such could be used as buy signals.

However, they require confirmation to become more reliable, and that happens when the market continues its upward direction. In the following article of Nominex, we will introduce these bullish patterns in detail.

How to read bullish candlestick patterns?

Reading and identifying bullish patterns in candlestick charts requires a basic understanding of candlestick charts. Each candlestick represents four pieces of information of a day’s price data:

–         The opening price

–         The closing price

–         The highest price

–         The lowest price

Each candlestick by itself has three main components:

–         The body: central rectangle (also called the real body)

–         The shadow: also known as a wick, indicates the intra-day high and low

–         The color: reveals the direction of market movement – green (or white) candlesticks indicate price increase. While red (or black) candlesticks show price decrease

When a candlestick is black or red, it means the closing price for that day was less than the opening price. So it is bearish and suggests selling pressure.

On the other hand, when a candlestick body’s color is white or green it means that the closing price was higher than the opening price, suggesting bullish movement and there is a strong buying pressure in the market.

Shadows are lines at both ends of a candlestick and show the entire range of price action for the day, from low to high. The lower shadow shows the lowest price for the day, and the upper one shows the asset’s highest price on the same day.

Bullish Candlestick Patterns

Bullish candlestick patterns form over time and in most cases, they consist of the formation including one to five candlesticks.

Several types of patterns form on these charts that are known by descriptive names like a hammer, three white soldiers, and a morning star, to name only a few.

The time to form a pattern can take one to four weeks, but as we mentioned earlier, their main forms typically consist of one to five candlesticks.

However, reading bullish patterns requires the understanding of the following principles:

–         Within downtrends, bullish reversal patterns form. When reversal patterns form in an uptrend, they rather should be considered continuation patterns.

–         Bullish confirmation is required for most bullish reversal patterns. That means they should be followed by upside price moves which form visually as long hollow candlesticks accompanied by high trading volumes. This type of confirmation occurs within three days of the pattern.

Bullish patterns are generally used by traders to identify momentum and trading opportunities.

Traders can also use other means of traditional technical analysis, such as momentum indicators, oscillators, trend lines, and volume indicators along with these patterns to make more rational trading decisions.

In the following, we will introduce the most important bullish candlestick patterns.

Hammer and Inverted Hammer

The hammer is a bullish reversal pattern that suggests an asset’s price is nearing the end of a downtrend.

It is one of the most useful bullish candlestick patterns and as such could be considered as a positive sign of price movement.

It is a single candlestick pattern that always appears in downtrend markets. However, this bullish indicator has two types:

–         Hammer pattern

–         Inverted hammer pattern

The hammer candlestick has a short body with a longer lower shadow that means sellers driving prices lower during its trading session to provoke strong buying pressure to end the session on a higher close price.

So when you identify a hammer pattern on a downtrend candlestick chart, it suggests a bullish reversal movement.

However, this pattern should be confirmed by an upward trend in the following few days and also an increase in the trading volume.

An inverted hammer pattern also forms in downtrends and suggests a potential trend reversal or support.

Its main difference with the hammer pattern is that it has a long upper shadow, which indicates high buying pressure, followed by noticeable selling pressure.

Just like the hammer pattern, the inverted hammer pattern should be confirmed in the following trading sessions.

On a candlestick chart, its confirmation comes in the form of a long hollow candlestick or a gap up, along with heavy trading volume.

It simply suggests that buyers will soon take control of the market.

Bullish Engulfing

It is one of the bullish candlestick patterns that generate buy signals that could be easily identified by traders. The bullish engulfing pattern forms by two candles.

Its rule is that the second candle simply engulfs the body of the first one, regardless of the length of the shadows. The first candle should be a short red candle that is completely engulfed by the second larger green candle.

In traditional candlestick charts, this pattern is a combination of a short dark candle followed by a larger hollow candle.

It suggests that buying pressure is pushing the price up to a higher level than the previous high, which is a great trading opportunity.

However, to take advantage of this pattern, it is recommended to wait to see price moves higher than the high of the second engulfing candle as a downtrend reversal confirmation.

Engulfing pattern is one of the strongest bullish candlestick patterns around, and it should always appear at support level or at least after a bearish swing.

However, when this formation appears at resistance, it could not be read as a bullish engulfing.

Piercing Line

The piercing line pattern is another two-candle bullish reversal pattern that also appears in down trending markets.

In traditional black-and-white candlestick charts, it comprises a long black candle followed by a white candle with an open price lower than the previous close price.

It is one of the most useful candlestick patterns that could be used to identify a strong buying pressure that leads to an increase of price up to or above the mid-price of the previous day.

This reversal pattern suggests an intra-day gap between the close price of the first candle and the open price of the second candle, and when this gap amounts to a two-thirds increase in price, it could be considered a strong reversal signal.

Morning Star

Morning star is a positive sign that suggests hope and a new beginning in a dark down-trending market.

It consists of three candles in which one short candle following a long red candle, and is followed by a long green candle.

In traditional candlestick charts, it appears as short white or black candle following a long black candle and followed by a long white one.

The main important factor in forming a morning star pattern is that the short candle should not have an overlap with the black or red preceding candle, which shows that the selling pressure of the previous day is now subsiding.

But the third candle should overlap with the body of the first candle that suggests a buying pressure and the beginning of a bullish reversal.

Three White Soldiers

Three white soldiers is another reversal pattern between candlestick patterns. It usually appears after a period of the down-trending market.

As its name suggests, it consists of three long white candles that progressively close higher on subsequent trading days.

It suggests a steady advance in buying pressure, as each candle opens higher than the previous open and closes near the high of the day.

 This pattern could be regarded as a signal of a very strong bullish reversal that comes after a relatively long downtrend.

When traders observe this pattern they can consider it as a buy signal, as price begins an uptrend rally.

Bullish Counterattack

Bullish counterattack is one of the strongest bullish candlestick patterns that could be identified very easily.

It is a reversal pattern that consists of two candlesticks. It appears most of the time in strong downtrend markets and suggests a reversal in price movement.

The first candle in this pattern should be a long black or red candlestick. The second candlestick should be white or green and also be a long candle, which closes near the close of the first candlestick.

Bullish counterattack patterns suggest a general change in emotions at the market. While the first candle suggests that the bearish downtrend is strong enough to make a long candlestick, its closing price shows that it is unable to go lower than current price points.

However, the second candlestick shows that bulls are taking the advantage of the condition and will start a new uptrend.

Bullish Harami

Bullish Harami is one of the most popular Bullish candlestick patterns. It consists of two candlesticks, a large black or red candlestick that appears near a support level after a bearish swing.

The second candlestick should be a smaller white or green candle that completely appears inside the previous candlestick.

The term “Harami” in Japanese means “pregnant”, and it refers to the placement of the second candlestick in the first one.

When this pattern forms on the chart, it shows a tendency in the market to experience a bullish reversal.

However, despite its popularity, this pattern is an unreliable indicator most of the time.

It should be associated with other bullish candlestick patterns to confirm the tendency, and as such it often simply leads to a sideways move rather than a bullish reversal.

One White Soldier

This two-candlestick pattern is not very popular among traders, but it could be considered a relatively strong signal of a potential reversal in downtrend markets.

The first candlestick of this pattern usually appears in a bearish swing at or near the support line. It should be a strong black or red candle that indicates bears are exhausting the support level.

Since it shows a significant gap in intraday trades, it might be a signal of a strong reversal.

However, just like other bullish candlestick patterns, it could be most useful when is used along with other indicators and also requires bullish confirmation.

Closing Thoughts

Bullish candlestick patterns are technical indicators that most often appear in downtrend markets. They are useful indicators that could be used by traders to place buy orders or identify the momentum.

Some of them, however, are more reliable, while others might be less trustworthy and should not be used unless strong confirmations follow them.

You can easily use trading tools that help identify bullish candlestick patterns.

These patterns are used by most experienced traders to identify and spot momentum to enter a position in a market that starts to move upward.

Leave a Reply

Your email address will not be published.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Get last Update & news faster on Nominex    OK No thanks