Should you trust candlestick patterns? If so, how much?
If you don’t trust then why?
Ever thought about the reliability of this pattern?
This post is for those who are struggling to know the credibility of this pattern. If you are in the same line join us and start reading.
To specify the reliability of the candlestick pattern, You will prefer to ask first:
Are candlestick patterns reliable?
Yes, they are reliable. But all candlestick patterns are not the same. Some are more reliable to make trading strategies than others. Its reliability depends on various factors like the trading market, the timings, and the suitable positions of your trade.
Candlestick patterns are profitable. However, despite spending all your efforts, you can’t get 100% results. It doesn’t work all of the time. But it can work effectively in correlation with your own trading skills.
Let’s dive in to know more.
How Reliable Are Candlestick
Do candlestick patterns work effectively?
Yes, they do work exactly. They will help you to satisfy your confusion about prices in a certain period. For example, it will provide you with a precise set of prices. However, they will work for you in a certain market situation. No matter what these prices are, maybe they are low, high, open, or close.
However, they are not very effective in telling the upcoming prices. Because they are not specific for predicting future prices. If you technically analyze the statistical data of candlestick charting, it would be an element to guess the future price. And this price will give you a satisfying result.
It is a fact that few candlestick patterns work more exactly than others. But your earning depends more on your trading strategy rather than your studying skill of candlestick pattern.
All candlesticks don’t work similarly. Most popular patterns are less reliable. Because algorithms and hedge funds have analyzed them. Such types of heavily funded traders trust on lowest exit trades against retailers as well as common funding managers.
Who carry out practical schemes written on popular data.
In trading platforms, hedge fund managers take the help of some software to attract the players. They are in search of bearish or bullish trends to get higher results. But the best patterns keep showing themselves. They are providing both long and short-term chances to earn more.
How Do Candlestick Work
Thomas Bulkowski fixed the working levels of the candlestick pattern. He presents figures for 2 types of awaiting pattern results:
- Reversal candlestick charts guess the movement in price.
- Continuation candlestick pattern guesses an addition in the recent price movement.
List of 5 Best Candlestick Charts
The five most reliable candlestick charts work accurately. When the speed and price direction changes the ancestors.
Each pattern performs under the boundaries of pricing bars. That is anticipating the lesser or higher prices. Timing has a close relationship with them.
- They show their performance during the chart reviewing time. No matters, they are intraday traders working on a per day, week, or monthly basis.
- After the completion of a pattern, their power minimizes quickly from 3 to 5 bars.
1. Three Line Strike Pattern
It is a downtrend with 3 black-colored Bullish candlesticks carved in it. You can say it is a reversed typed pattern. Every bar offers a minimum low. That is likely to end in front of a low intra-bar.
The 4th bar starts too underneath. But turn back in a vast range at the external bar. Which ends up at the high score of the 1st candle in the sequence. The starting indicator points at the low score of the 4th bar.
Bulkowski says that this type of reversal gives the 83% exact higher prices.
2. Two Black Gapping Bearish Pattern
This pattern comes when a remarkable top point appears in an uptrend. Having a down distance with two black bars supporting lower lows. The pattern indicates that the decrease will keep up to further lower lows.
In case of hitting a downtrend broader scale. In Bukowski’s opinion, this pattern guesses 68% exactly about lower prices.
3. Three Black Crows Reversal Pattern
The three black crows pattern open in front of or close to an uptrend of high. It has 3 black bars that end up at lows of intra-bar. This chart tells that the decrease will keep up towards lower lows. If you hit a downtrend of a broader scale.
The strong model begins from the first point of a fresh high on the chart.
Because it speeds up the buying power or.
Bulkowski says about this pattern that it works 78% accurately with lower prices.
4. Bearish Evening Star Reversal Pattern
This reversal pattern opens with a long white bar. Which brings an uptrend to a fresh high. The market break goes higher on the next bar. It will make a confined range candlestick. You can’t find new buyers here.
In the pattern on the 3rd bar, a break appears downward to settle the pattern. This pattern guesses about the decreasing trend will keep up to further lower low. As if hitting a wider scale downtrend.
Bukowski suggests that this bearish pattern works 72% accurately with lower prices.
5. Abandoned Baby Reversal Pattern
This pattern is accomplished with 3 candles:
- The first one is to increase the price.
- Number two is possessing prices.
- Third candle deals with dropping prices.
At the end of the sequence of black candles marking lower lows, the abandoned baby pattern comes near the low point of a downtrend. The market break gets lower on the next bar. Now it will submit a limited range of Doji patterns that starts and ends at the matching price.
This pattern is completed by a bullish break on the 3rd bar. If a broader scaled uptrend is activated. It guesses about the consistency of regaining at the higher highs.
Bulkowski says: this pattern works 49.73% exactly in predicting higher prices.
What Factors Affect The Reliability Of Candlestick Pattern
Several factors affect the reliability of candlestick patterns. Below we have listed them:
- The Tools
- The Periods
- The Range Of Candlestick Pattern
- The Charts Of Candlestick
Table of 4 influencing factors of candlestick reliability
|Tools||The candlestick relies on the trading volume of instruments. As the tools are more liquid, the candles are more reliable. Some candles work more effectively for a stock than forex.|
|Periods||Usually, short-term candles are less reliable than long-term candles. Such as morning star patterns show minimum reliability to trade on a single-minute chart. But it works more reliably on a daily or weekly basis. Because short-term traders change their decisions emotionally and quickly. Whereas long-term trends developing on intraday trading or weekly based trading are much reliable to try.|
|Range Of Candlestick Pattern||The size of the pattern influences the reliability of candlesticks. Larger-sized candles are more effective than smaller ranges. The power of the signal depends on the size of the price change. The higher the price moves, the more reliable the signal work. When a pattern contains more candles, it would be more reliable. But it happens rarely.|
|Charts Of Candlesticks||The location of the candlestick is important. If some opposing and helping lines appear closely, and the candles verify these lines, the trade will be more reliable. If there exists a winning trend, following or opposing this trend works more reliably.|
8 Strong and Reliable Candlestick Patterns
In forex trading, the most reliable candlestick pattern is JAPANESE CANDLESTICK charts. These charts predict the future market price and its further movements. The data is hidden in the coloring codes of the single candlesticks with the clear formats and models of candlesticks.
Typically the most trending and reliable instruments are bearish, bullish reversal, and doubted patterns are:
Table of 8 most Reliable candlestick patterns
|1.Hammer||It appears if a price goes down and predicts the direction change in price. This candlestick points that by hitting the price down through previous bears, the bulls will occupy that trading zone. At this point, bearish patterns are losers while bullish are the reliable gainers.|
|2.Piercing||This pattern has two candlesticks. That appears after a price movement in a bearish pattern. Usually in a specific timeframe candlesticks are considered as one. In the timeframe of 1 minute to 60minutes, its outlook would become a Hammer having a bearish shape. It points out that bearish patterns were dominant in the initial session. However the bullish are ready to push up the price. Now is the time of bulls’ reliability.|
|3.Bullish Engulfing||After the initial trading session, the bears are preparing to go back and inviting the bulls to take over. It would force the price up than its position in the previous trading version. At that time the early move had completed its swing. Now it is ready to log out for leaving a place for a new upgoing move. It has a VIP type of engulfing pattern in which the second candlestick swallows the complete volume of 1st candlestick.|
It is also known as an external bar or reversal day. It is more reliable than common engulfing.
|4.Tweezer Bottom||This pattern consists of 2 one after the other candlesticks. Both have the same lows. It appears after a downward change in price. The bears have to face|
Much pressure from buyers. So bulls may get ready to take over. For this pattern, the time frame also matters. For example, on a daily time frame, it plays more reliably as a double tweezer bottom on an hourly basis.
|5.Bullish Harami||It appears with two candlesticks after the downward change in price. It is like an internal bar coming on the chart. When it comes to a low movement area, the price is near to go high.|
|6.Morning Star||It appears next to a downward trend. It has 3 types of candles: a long bear candle, a little gaping candle that starts below the 1st and wraps the upper wick, and a length that ends at the middle of the 12tone.|
|7.Bullish Hikkake||It comes after a bearish price change. It has a variety of candle numbers. Which depends on the number of trading sessions that change the price over the second candle. This pattern indicates that investors are getting ready to hold long positions. Now it is proving to decrease the price to attract more trades.|
|8.Dark Cloud Cover||It has two bearish candlesticks. That appears next to an up-trending price movement. In the first trading session, the bulls were not out of order. Bears are looking more confident in the 2nd trading session. Now it is likely to end the starting price.|
Most Asking Questions
Which one is the most effective candlestick pattern for intraday trading?
For intraday traders, the most effective and reliable choice is THE SHOOTING STAR candlestick. This pattern indicates the top of bear reversal mode against the hammer candle. Whereas hammer locates an underneath trend.
What is the reason for candlestick patterns working?
Because traders observe the pattern appearance and the price goes accordingly with the suggested chart. This situation creates a faith that the pattern predicts the market circumstances. So they rely on patterns for upcoming market developments.
Candlestick patterns are not everything in trading. The most important thing that makes it effective is your ability to make your trading plans in the light of the best candlestick pattern.
To make the trade-in your favor just goes through the backtesting. It will make you trust in some profitable candlestick pattern. The 3 most common and consistent
Candlesticks occur in a black body, white body, and hammer in different trading platforms.