Types of Candlesticks, Which is the Most Potential?

Understanding the types of candlesticks is essential for those who want to enter the world of trading. As is known, trading is often found because it is one of the investment choices among young people.

However, before investing and trading, you must first know what candlestick patterns are and their types. Check out the review below.

What Are Candlesticks?

A candlestick pattern is a way or method to monitor the possible price of a trade. Candlestick patterns will reflect the impact of investor sentiment on prices.

The analysis can be carried out to determine the exact time of entry and exit of trading activity.

As mentioned earlier, this method must be understood by investors and traders because candlesticks are one of the innovative strategies in the investment world.

Candlestick History

Historically, this candlestick pattern was discovered by a person from Japan named Munehisa Homma. This man, who first worked as a rice trader, created a candlestick pattern on the 17th. The aim is to calculate the movement of rice prices.

With that idea, Homma successfully dealt with the market with his analytical skills. Then, over time, candlesticks also developed as a type of chart in the trading world which is quite popular and widely used by traders.

Homma’s candlestick findings 250 years ago are now beneficial for analyzing market price movements. Not only commodities, but the chart also applies to the stock, futures, forex, and crypto asset markets.

The following are the types of candlesticks that you need to know.

1. Candlestick Single

This single, aka candlestick pattern, consists of one segment and is the easiest to see. Here’s what’s included.

Spinning Top

A spinning Top has its characteristics. Namely, two elongated shadows at the top and bottom with a small body. In one of these candlesticks, the uncertainty between buyers and sellers becomes the main focus.

Usually, this graph is considered neutral because there was a deadlock during that period. However, it is essential to note when the Spinning Top will appear.

Related to that, if the spinning Top appears during an uptrend, it means more sellers are in the market. However, on the contrary, if the number of buyers is more, it is represented by the Spinning Top during a downtrend.

Notes:

• Signal: bullish/bearish depending on the candle’s Open and Close price positions.
• Accuracy: Low-Moderate.

Marubozu

In this candlestick pattern which means “bald head,” you will find a body candle that has no shadow, either up or down—it will only look like a hairless head.

This pattern shows a strong movement from one side (buyer or seller), likely to last for several periods in the future.

It is essential to know in Marubozu Bullish, the Close price is always higher than the Open, and the candle has no wick at all. Meanwhile, on Marubozu Bearish, the Close price will always be lower than the Open and without a wick.

Notes:

• Signal: Bullish/Bearish depending on the candle’s Open and Close price positions.
• Accuracy: High.

Doji

Although it is almost similar to the Spinning Top pattern, this Doji pattern has more complex characteristics. This candlestick also has a very thin body. It even looks like a line because the Open and Close prices are the same.

This happens because there is no one who can take control between the seller and the buyer. There are four types of Doji: Long-Legged Doji, Dragonfly Doji, Gravestone Doji, and Four Price Doji.

However, the Doji, in general, is a consolidation signal. To know the certainty of the direction of the next price movement, it is necessary to confirm the next candlestick bar after the Doji.

Notes:

• Signal: Consolidation.
• Accuracy: Moderate-High.

Hammer

The Hammer candlestick pattern is shaped like a hammer, true to its name. Having a long lower shadow and a small body, the Hammer pattern indicates a bullish reversal (price reversal from decreasing to rising) during a downtrend.

It is essential to know many other indications need to be considered before you rashly take a buy order when you see a Hammer candlestick, including:

Pay attention to the length of the lower shadow. Is it 2-3 times the size of the original candle body?

Pay attention to the length of the upper shadow. To qualify for the Hammer pattern, the upper shadow must be very small or non-existent.

Notes:

• Signal: Bullish.
• Accuracy: Moderate.

Hanging man

At first glance, it is almost similar to the types of Hammer candlesticks, but the position of the hanging man pattern is not the same as the Hammer. The hanging man is shaped like a hanged person and is located at the Top of a chart.

This candlestick shows a bullish to bearish price reversal, but the accuracy is low. After seeing this candlestick pattern, don’t be in a hurry to take a stand.

Then, wait for the Close of the next candle. If the Close price on the next candle is even lower, it can confirm a bearish reversal tendency.

Notes:

• Signal: Bearish.
• Accuracy: Low

Inverted Hammer

The Inverted Hammer is an “inverted hammer” pattern that usually indicates a Bullish signal. The reason is even though the price fell, buyers still managed to close the session close to the Open price. However, the accuracy is low because it is somewhat contradictory.

One of these types of candlesticks has an upper shadow that is longer than the body, which intuitively should inform seller pressure, but here it signals the price to go up.

Notes:

• Signal: Bullish.
• Accuracy: Low.

Shooting star

As the name suggests, the appearance of the Shooting star pattern is indeed similar to a shooting star. This pattern has a long upper shadow, with the filled body facing downwards.

Usually, Shooting star as one of these types of candlesticks shows a price reversal to a decline.

Notes:

• Signal: Bearish.
• Accuracy: Moderate.

2. Candlestick Double

Moving on from the single candlestick type, there is the double candlestick pattern. The following are the types of double candlesticks.

Bullish engulfing

This Bullish engulfing candlestick pattern signals that an uptrend will occur, namely when a larger bullish candle follows a bearish candle. This happens because the bulls (buyers) are more potent than the bears (sellers).

Notes:

• Signal: Bullish.
• Accuracy: Moderate.

Bearish engulfing

Judging from its name, Bearish engulfing as one of the types of candlesticks has the opposite nature to the previous candlestick. Bearish Engulfing itself indicates a downtrend.

Another thing to note is that a larger bearish candle will follow a smaller bullish candle. The reason is that the sellers can restrain the buyers’ pace.

Notes:

• Signal: Bearish.
• Accuracy: Moderate.

Harami

Harami, in Japanese terms, means “pregnancy.” The mention of one of these types of candlesticks is because the pattern is formed from two candles with the body on the second bar always smaller and in the womb or within the range of the first candle’s body.

Smaller bars will indicate the price movement has reached its lowest point and will most likely be unable to continue the current trend. The smaller the second bar, the stronger the prediction that a reversal will occur.

Notes:

• Signal: Reversal can be bullish or bearish.
• Accuracy: Moderate-High.

Tweeter

In addition to the engulfing pattern, there is a Tweezer pattern, both Bottoms and Tops. In this case, a candlestick pattern called Tweezer Top indicates a bearish reversal when an uptrend occurs, while a Tweezer Bottom candlestick is a bullish reversal pattern during a downtrend.

Notes:

• Signal: Reversal can be Bullish (Tweezer Bottoms) or Bearish (Tweezer Tops).
• Accuracy: Moderate.

Dark Cloud Cover & Piercing Line

For information, these two types of candlesticks are fairly well-known double candlestick patterns.

Dark cloud cover is a bearish pattern while piercing line is a bullish pattern. Both can help you to determine the entry position quickly.

3. Candlestick Triple

The following types of candlesticks are triple candlesticks, which traders widely use because of their higher accuracy.

In the following pattern, a third party will help you as a trader to read market conditions more precisely.

With its complexity, this candlestick rarely appears. However, with it also, the accuracy is higher. The following are the types of triple candlesticks.

Morning Star & Evening Star

The main characteristic of these two patterns lies in the appearance of a Doji (a candlestick with a skinny body like a line) between two candlesticks with a long body.

On the Morning Star, the arrangement that appears is a bearish candle-Doji-bullish candle, and occurs in a downtrend chart position. This pattern indicates it’s time to buy (bullish reversal).

However, on the contrary, the Evening Star pattern occurs in an uptrend chart position. It signals the time to sell (bearish reversal), forming a bullish candle-Doji-bearish candle.

Notes:

• Signal: Reversal can be Bullish (on the Morning Star) or Bearish (on the Evening Star).
• Accuracy: High.

Three White Soldiers & Three Black Crows

This following pattern is different from the previous candlestick patterns because it is used to confirm the strength of the current trend direction, not to show a reversal signal.

The Three White Soldiers are formed from three long bullish candles following a downtrend. The three white (green) soldiers are used to confirm a bullish state, especially if it comes after a prolonged downtrend and a brief period of price consolidation.

Meanwhile, the Three Black Crows pattern is the opposite of the Three White Soldiers, which is formed when three bearish candles follow a strong uptrend and indicate that a reversal is imminent.

Notes:

• Signal: Confirm Bullish (Three White Soldiers) or Bearish (Three Black Crows).
• Accuracy: High.

The Most Profitable Candlestick Patterns

Of the types of candlesticks described earlier, several candlestick patterns are considered to have great potential to bring profits. Here is the review.

Marubozu

The Marubozu pattern occurs when there is a full body without shadow. This one model will indicate a very confident market.

The trend that occurs will usually continue. Marubozu consists of two types: Marubozu White (bullish) and Marubozu Black (bearish).

Doji

This following pattern is the most frequent and easiest to find reversal pattern. This candlestick shows the opening price the same or almost the same as the closing price so that only a thin line appears in the middle of the shadow.

Usually, the Doji shows a change in trend, either bullish or bearish, so you need to be alert if you find a Doji.

With the presence of this candle, there will be a possibility of a reversal. The longer the doji’s tail, the stronger the possibility of a reversal.

Hammer

With a hammer-like shape, this Hammer pattern usually indicates a reversal. The opposite of this pattern, namely the Inverted Hammer.

Engulfing

This is a candlestick pattern with a relatively strong reversal indication. The characteristics are seen from a short candle followed by a longer candle so that the height covers the previous candle.

Well, that’s the information about the types of candlesticks you need to know and understand. Other recent reviews about the world of digital assets only at Indodax Academy.