Candlestick charts are now used by maximum number of traders and technical analysts. Some patterns like engulfing pattern, hammer , dark cloud cover , morning evening star etc are very popular and are know to everyone. There are many candlestick patterns that are not much popular but are very important patterns. Below are some less popular candlestick patterns that can help you to make right trading decision.
1. Bullish and Bearish Belt Hold Lines
This is a trend reversal indicating candlestick pattern. A belt hold line can be either bullish or bearish. The longer the height of the belt-hold candlestick line, the more significant it becomes. The bullish belt hold is a strong white candlestick which opens on the low of the day (or with a very small lower shadow) and moves higher for the rest of the day. The bullish belt-hold line is also called a white opening shaven bottom. The bearish belt hold is a long black candlestick which opens on the high of the session (or within a few ticks of the high) and continues lower through the session.The bearish belt-hold line is sometimes called a black opening shaven head. Trading position can be taken after the confirmation. In case of bullish belt hold line open or close above the previous day can be used as conformation. In case of bearish belt hold open or close below the previous day can be used as confirmation. As you can see from the above chart in the first bullish belt hold line candlestick pattern conformation didn’t came, but in the second bullish belt hold pattern conformation came and the trend changed from downtrend to uptrend. Similarly in the same chart bearish belt hold pattern appeared at the top of up trend and then trend changed to downtrend from uptrend.
2. Up side gap two crows
This is a bearish reversal candlestick pattern that requires 3 candles. It is valid when occurs in uptrend. First day candle is a long white candle. second day candle is black candle that opens with gap above the close of first candle. The third candle also gaps up but closes below the close of 2nd day candle. The psychology of this pattern shows that new high fail to hold and the market forms a black candlestick on day 2. The same happens in day 3 and it is more negative as the session closes under the prior day’s close. The market is in uptrend but fails to make new high. This indicates bears are getting strong.
3. Three Black Crows
This pattern is also called as three winged crows. It consist of three consecutive black candles that opens with upside gap. The three black crows pattern is a bearish reversal candlestick pattern, so it is valid when it occurs in uptrend. The three candles should close at or near their lows. Opening of each candle should also be within the prior session’s real body.
When the open of the second and third black candlestick are at or very near the close of the prior black candlestick then the pattern is called as identical three black crows pattern. It is regarded as specially bearish pattern. Generally there is some up side retracement after the formation of this pattern but it cant retrace above the previous swing high. That is the right time to take short position with stop loss above the recent high.
4. Counter Attack Lines
Counterattack lines are formed when opposite colored candlesticks have the same close. This pattern looks similar to piercing or dark cloud cover pattern but it is actually different.
The bullish counter attack line is a downtrend reversal pattern which occurs during downtrend. The first candlestick of this pattern is long and black. The next session opens sharply lower but bulls does a counter attack and push prices back up to the unchanged from the prior close.
The bearish counterattack line is a top reversal pattern that occurs in uptrend. The first candlestick, a long white one, keeps the bullish momentum going. The next session’s opening gaps higher. Then the bears come out fighting and pull prices down to the prior day’s close.
5. Three Advancing White Soldiers
This patter consist of three white candles with consecutively higer higher closes. If this pattern appears at a low price area after a period of stable prices, then it is a sign of strength ahead. In an uptrend this pattern shows the strength of upmove.
If the second and third, or just the third candlestick, show signs of weakening it is called an advance block pattern. It shows that rally is running into troubles and bulls should be careful.If the last two candlesticks are long white ones that make a new high followed by a small white candlestick, it is called a stalled or deliberation pattern. It shows that the bulls strenght is at least termorarily exhausted. It shows that it is the right time to book profit.
Abhishek is an Engineer MBA in Finance and Certified Research Analyst. He is an active trader and investor in the stock market since 2010. Follower of the philosophies of Warren Buffet and Peter Lynch in investing and trend following in trading.