In chart pattern which shows any trend over time forms some patterns which influence future trend and particularly in share market using these chart patterns, we can predict possible future move with higher probability. Identifying these patterns can be tricky and hard sometimes. Here I am going to put some chart patterns with a brief explanation which can help you in identifying chart patterns.
Here we will be using examples with red and white body candles where red candle means prices came down and the white candle depicts price appreciation.
Piercing Chart Pattern:
It is a Bottom Reversal Signal pattern. In a downtrend, a long black candlestick is followed by a gap lower during the next session. This session finishes as a strong white candlestick which closes more than halfway into the prior black candlestick's real body. Compare to the on-neck line, the in-neck line, and the thrusting line.
Morning Star Chart Pattern:
It is a major bottom reversal pattern formed by three candlesticks. The first is a long black real body, the second is a small real body (white or black) which gaps lower to form a star, and the third is a white candlestick that closes well into the first session's black real body.
Inverted Hammer Chart Pattern:
Following a downtrend, this is a candlestick line that has a long upper shadow and a small real body at the lower end of the session. There should be no, or very little, lower shadow. It has the same shape as the bearish shooting star, but when this line occurs in a downtrend, it is a bullish bottom reversal signal with confirmation of the next session (i.e., a white candlestick with a higher close or a higher opening).
Harami Chart Pattern:
It is a two candlestick pattern in which a small real body holds within the prior session's unusually large real body. The harami implies the immediately preceding trend is concluded and that the bulls and bears are now in a state of truce. The color of the second real body can be white or black. Most often the second real body is the opposite color of the first real body.
Hanging Man Chart Pattern:
This chart pattern is an important top reversal. The hanging man and the hammer are both the same type of candlestick line (i.e., a small real body (white or black), with little or no upper shadow, at the top of the session's range and a very long lower shadow). But when this line appears during an uptrend, it becomes a bearish hanging man. It signals the market has become vulnerable, but there should be bearish confirmation of the next session (i.e., a black candlestick session with a lower close or a weaker opening) to signal a top. In principle, the hanging man's lower shadow should be two or three times the height of the real body.
Hammer Chart Pattern:
It is an important bottoming candlestick line. The hammer and the hanging man are both the same line that is a small real body (white or black) at the top of the session's range and a very long lower shadow with little or no upper shadow. When this line appears during a downtrend it becomes a bullish hammer. For a classic hammer, the lower shadow should be at least twice the height of the real body.
Evening Star Chart Pattern:
Evening Star is a top reversal pattern formed by three candlesticks. The first is a tall white real body; the second is a small real body (white or black) which gaps higher to form a star, the third is a black candlestick which closes well into the first session's white real body.
Engulfing Chart Pattern:
There is a bullish and bearish engulfing pattern. A bullish engulfing pattern is comprised of a large white real body that engulfs a small black real body in a downtrend.
The bullish engulfing pattern is an important bottom reversal. A bearish engulfing pattern (a major top reversal pattern), occurs when selling pressure overwhelms buying pressure as reflected by a long black real body engulfing a small white real body in an uptrend.
Doji Chart Pattern:
A session in which the open and close are the same (or almost the same). There are different varieties of doji lines (such as a gravestone or long-legged doji) depending on where the opening and closing are in relation to the entire range. Doji lines are among the most important individual candlestick lines. They are also components of important candlestick patterns.
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