Sunday, September 14, 2008

How To Spot Four Reliable Candlestick Reversal Patterns by Woods Richard

One of the toughest decisions to make while trading is knowing when to sell. Gains can quickly turn into losses because many beginning traders use emotion rather than a system that is developed over time. One of the most reliable ways to protect gains is by learningcandlestick reversal patterns. Japanese candlestick charts have been used for hundreds of years to predict commodities markets and in recent history, equities, futures and Forex markets.

Outlined below is a list of some of the most reliable candlestick reversal patterns if a trader knows how to recognize them.

The Abandoned Baby

This reversal pattern appears after a strong upward move followed on the second day of little if any movement, either up or down, as bears and bulls struggle for control forming a doji. The third day confirms a sell off as sellers hit the exits forming a long bearish candle. The longer the down candle on the third day, the stronger the confirmation that the uptrend is over.

The Bearish Evening Shooting Star

This formation begins with a move up as buyers jump on with the second day continuing the pattern at the opening bell. However, as the second day progresses, sellers take over pushing the days candle back down to close near where it opened in the morning session. The second day candle is a good indication that the third day will see selling on the open the third day and is confirmed by a closing red candle.

Hanging Man

One of the best indicators to determine the exhaustion of a current upward movement is the hanging man suggesting a candlestick reversal pattern. The day after a move up, the market opens with a strong sell off forming a long shadow with buyers coming in to push the candle above where it opened the session. The hanging man formation is an indication that sellers are gaining in strength and buyers are losing control of the upward move.

Gravestone Doji

The Gravestone Doji is a possible candlestick reversal pattern that shows that there may be weakness in the current uptrend, signaling traders that a reversal may be coming. Buyers continue to push the market higher on day two but sellers have taken over by the time the market closes. A closing red candle on the third day confirms the signal that the current uptrend is broken.

Japanese candlestick charts form many different patterns and learning to read and understand what these formations possibly indicate can mean the difference between winning and losing while trading. Learning to recognize candlestick reversal patterns can help beginning traders learn when to sell at the best possible time, taking indecision out of the equation.


About the Author

Learn more about Japanese candlestick charts and candlestick reversal patterns.

Learn about the penny stock market.



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