What is a candlestick pattern precisely? Is it a literal candle that is used when the electricity goes off? Well, the answer is no. The candlestick or chart patterns that we are going to discuss here are the fundamental parts of day trading. Without them, the traders would be lost in the noises—ups and downs—of these candlesticks, not knowing what to do next.
Copying the definition from Investopedia, a candlestick in the trading terminal is a type of price chart used in technical analysis that displays the high, low, open, and closing prices of a security for a specific period. It represents the price flow of a certain asset for a specific range of time. The shadow on the top shows the high price of the candle, the body illustrates the opening and closing costs, and the wick (shadow) on the downside symbolizes the low price. Shortly, this candlestick or chart notifies the traders when the price is high or low and green or red, helping them plan the next movement.
Before jumping further to what patterns are best to make us wealthier, we should know these two major types; bullish and bearish. Bullish, as from the word bull, means that the following pattern will be strong like a bull. In another word, it goes upward. On the other hand, bearish signals the downtrend, notifying the traders that what comes next is not going to be good. Bullish for the uptrend and bearish for the downtrend.
For the most effective patterns that will make you wealthy, you might want to remember the following lists that are going to be explained.
5 Best Candlestick Patterns to Use in Day Trading
This pattern is one of the bullish types, which means it reveals that the upcoming trend is going to be green (the closing price was higher than the opening). It also indicates the reversal pattern; from downward to upward. As from its name, the morning star pattern happens in the morning, usually, around 10 am.
Many successful traders said that this chart is the key to a wealthy life. It indeed is. The reversal pattern from downtrend to uptrend is surely a good thing, which means that the price is higher than before.
Three Line Strike
This chart is made out of three black candles priorly from the downtrend that goes high above the first opening candle. Each line was, in fact, lower than the previous one. So, when it comes to the white candle, the accuracy rate is very high. Based on Bulkowski, this type of candle can reach the number of 83% accuracy. Just by looking at the number mentioned before, you can imagine how excited the traders are when they see this pattern. It feels like you get a huge precious prize.
Continuing the high accuracy amount that Three Line Strike has, some professional traders include this pattern into one of the best candlestick patterns for day trading. When the stock investors notice the first sign of this chart and then arrange the proper planning, they will absolutely get an uptrend.
Three White Soldiers
This pattern is also bullish. It suggests a noticeable change in the trend. Similar to the Three Line Strike, this chart also has three bars. What differs them is that Three White Soldiers has, of course, three white bars that go uptrend like a staircase. The last bar, however, almost reaches the same level of price as the opening bar (the bars that go downward). This type only consists of these three white lines.
Three White Soldiers is commonly used as an entry or exit point, usually when the traders are lack security look. Hence, it should never be ignored because what comes next would be very appealing to the traders.
Doji patterns can be bullish or bearish, but of course, to fill your bank account, this chart needs to be strong like a bull. It is often linked with indecision in the market, allowing Doji to be strong or weak. It also signifies that there is a potential reversal trend, as well as the consolidation—a pause in the trend that permits the users to start a new position. The candlestick of Doji itself is only a small body in the middle of long upper and lower shadows. You might not notice it at first, but through time, you will detect the various forms, like a Star Doji, it has. Moreover, the stable condition that Doji offers is what will make you rich.
Lastly, the hammer candlestick is a reversal bullish. Just like other strong bulls, this pattern allows the traders to have a good next trend. The formation of this chart contains a small body, not as small as Doji, where the open, high, low, and close, are in different places. One more important thing, the shadow beneath the body is almost twice the size of the body. These positions then visualize the shape of a hammer—can also be seen as T, causing it to be called the Hammer pattern.
Hammer condition occurs when sellers join the market during the decline of the price. Thus, by the time it closes, buyers drive the cost near the launching point. It is most effective when there are at least three or more declining sticks in the previous trend.
To sum up everything, candlestick patterns in the world of trading are very necessary for stock investors. They use these patterns to predict the upcoming trend and plan the right decision so they would get lots of profit. There are a lot of models, but the best candlestick patterns for day trading are the bullish ones; Morning Star, Three Line Strike, Three White Soldiers, Doji (Bullish), and Hammer. Whenever you see the sign of these bullish, keep your eyes on them as they will make your wallet thick and your life wealthy like Richie Rich.