Understand candlestick patterns.Hanging Man & the Hammer: If you see this pattern at the bottom of a downtrend, you are looking at a hammer! If it appears at the top of the uptrend, it is considered a hanging man. The hammer or the hanging man is identified by the small candle that appears at the very top of the pattern! There is usually a pretty long wick at the bottom. Learn forex trading and develop your own forex trading system.
If a hammer appears in a downtrend, you wouldn’t trade on it if the opening price on the next trading day is higher than the hammer’s close. Similarly, if you think you have a hanging man appearing in an uptrend, you wouldn’t trade on it unless it is confirmed the next day with an opening price lower than the previous close.
Double stick patterns depend on two days. The first day is called the set up day and the second day is called the signal day. Compared to single stick patterns, double stick patterns are difficult to come by. But these patterns can be very powerful and profitable if you put in the time and effort to monitor them.
Engulfing Pattern: It can be bullish or bearish! The first double stick pattern is the bullish engulfing pattern. The name comes from the fact that the signal day engulfs the pattern day. Both the wick and the body of the second day completely cover the same ground as the first day. The setup day candle should be bearish and the signal day candle should be bullish bigger than the last day bearish candle. Likewise the bearish engulfing pattern signals the end of a uptrend.
Bullish Harami: A Harami is a two day pattern with the candle of the setup day than the candle of the signal day. The first day is very bearish and occurring in a downtrend. However, on the second day bulls take over. This signals reversals of a downtrend that culminated in a downtrend.
Harami Cross: Harami Cross is a special variant of the Harami. It involves a Doji pattern and should always be considered an indicator of the potential reversal. A Harami Cross can also be bullish or bearish. Bullish Harami Cross appears during a downtrend. Its setup date is a black long candle. Its signal day is a Doji. Similarly, a bearish Harami is considered to indicate end of an uptrend.
Bullish Inverted Hammer: This pattern occurs in a downtrend. The first day is a bearish candle. The signal day is an inverted hammer. The bullish inverted hammer is a fairly rare pattern.
Bullish Doji Star: The bullish doji star is very similar to a bullish inverted hammer. It occurs in a downtrend and signals that the bulls have had enough. A bullish doji pattern is a two day pattern with the doji appearing on the signal day during a downtrend.
Bullish Meeting Line: This pattern is another signal that a trend reversal is about to take place. The setup day is a long black candle and the signal day is a long white candle.
Bullish Piercing Line: The bullish piercing line consists of a long black candle on the setup day followed by a long white candle on the signal day. The open of the signal day should be lower than the low of the setup day.