Candlestick Patterns Cheat Sheet: Master the Art of US Stock Analysis

In the world of stock trading, candlestick patterns are a powerful tool for predicting market movements. This cheat sheet will guide you through the most common candlestick patterns used to analyze US stocks. Whether you're a beginner or an experienced trader, understanding these patterns can significantly enhance your trading strategy.

Understanding Candlestick Patterns

Candlestick patterns are a type of Japanese candlestick charting technique that uses different colors and shapes to represent price movements. These patterns provide valuable insights into the market's sentiment and potential price movements.

1. Doji Pattern

The Doji pattern consists of a small body with long upper and lower shadows. It indicates a period of indecision in the market. A Doji with a long upper shadow suggests that the market is bearish, while a Doji with a long lower shadow suggests that the market is bullish.

Example:

• Bullish Doji: A bullish Doji occurs when the opening and closing prices are close together, and the upper shadow is longer than the lower shadow. This pattern suggests that buyers are taking control of the market.
• Bearish Doji: A bearish Doji occurs when the opening and closing prices are close together, and the lower shadow is longer than the upper shadow. This pattern suggests that sellers are taking control of the market.

2. Hammer and Hanging Man Patterns

The Hammer and Hanging Man patterns are reversal patterns that indicate a potential change in market direction. The Hammer pattern occurs at the bottom of a downtrend and consists of a small body with a long lower shadow and little or no upper shadow. The Hanging Man pattern is the inverse of the Hammer and occurs at the top of an uptrend.

Example:

• Bullish Hammer: A bullish Hammer occurs when the opening price is near the high of the day, and the closing price is near the low, forming a small body. This pattern suggests that buyers are gaining control and the downtrend may reverse.
• Bearish Hanging Man: A bearish Hanging Man occurs when the opening price is near the low of the day, and the closing price is near the high, forming a small body. This pattern suggests that sellers are gaining control and the uptrend may reverse.

3. Engulfing Patterns

Engulfing patterns are bullish or bearish continuation patterns that occur when the current candlestick completely engulfs the previous candlestick. There are two types of engulfing patterns: Bullish Engulfing and Bearish Engulfing.

Example:

• Bullish Engulfing: A bullish Engulfing occurs when a bearish candlestick is followed by a bullish candlestick that completely engulfs the previous bearish candlestick. This pattern suggests that the downtrend is reversing.
• Bearish Engulfing: A bearish Engulfing occurs when a bullish candlestick is followed by a bearish candlestick that completely engulfs the previous bullish candlestick. This pattern suggests that the uptrend is reversing.

4. Three White Soldiers and Three Black Crows

The Three White Soldiers and Three Black Crows are continuation patterns that occur at the end of an uptrend and downtrend, respectively. These patterns consist of three consecutive candlesticks of the same color, with each candlestick being larger than the previous one.

Example:

• Three White Soldiers: A Three White Soldiers pattern consists of three consecutive bullish candlesticks, each larger than the previous one. This pattern suggests that the uptrend will continue.
• Three Black Crows: A Three Black Crows pattern consists of three consecutive bearish candlesticks, each larger than the previous one. This pattern suggests that the downtrend will continue.

By understanding and applying these candlestick patterns, you can gain valuable insights into the market's sentiment and potential price movements. Remember, while candlestick patterns can be powerful tools, they should be used in conjunction with other analysis techniques for the best results.