Bearish/Bullish Engulfing - A bearish engulfing is a much bigger bear candle than the previous bull candle, hence the name ‘engulfing’, the new candle engulfs the previous candle. Only the body is taken into account. In this formation the trend doesn’t matter, it indicates a fall regardless of the trend. Vice versa for the bullish engulfing.
Candlestick charts are the most common chart types used by retail traders and investors. Candlesticks are the price movement/action for a certain period of time, from as little as 1 minute to a week or a month. The body of the candlestick is the price difference between the opening and the closing time. The two lines on each side, which are called shadows or wicks, display the highest and the lowest point of the price for that period of time.
Different types of candlestick
Dojis - In a doji, price opens and closes almost at the same level after having been trading both sides. Buyers and sellers both have a go at pushing the price higher and lower, but finally, the price ends up at the starting point. This means that forces are the same from both directions and after an uptrend where buyers had the upper hand, a doji indicates that the sellers are back in business. So a reversal or at least a pullback is about to take place. The opposite applies to a downtrend.
Pins/Reverse Pins - In a pin candlestick the price trades below the opening level and ends up at the same level by the time of the period close. This means that the buyers are matching the sellers and in a downtrend, it means that the bears are losing steam, therefore a reversal might take place. In an uptrend, a pin means that the sellers had a go at pushing the price down but were outnumbered by the buyers, so this is a confirmation of the trend continuation and longs have much better odds then shorts.
A morning star is a bullish candlestick pattern that consists of three candles that have demonstrated the following characteristics:
1. The first bar is a large red candlestick located within a defined downtrend.
2. The second bar is a small-bodied candle (either red or white) that closes below the first red bar.
3. The last bar is a large white candle that opens above the middle candle and closes near the center of the first bar's body.
An evening star is a bearish candlestick pattern consisting of three candles that have demonstrated the following characteristics:
1. The first bar is a large white candlestick located within an uptrend.
2. The middle bar is a small-bodied candle (red or white) that closes above the first white bar.
3. The last bar is a large red candle that opens below the middle candle and closes near the center of the first bar's body.
Hammers/Reverse Hammers – Hammers are basically the same as pins and reverse pins, but with a stronger momentum. In a downtrend hammer, the price opens, trades below and closes above the opening level, which means that the buyers more than matched the sellers. The size of the shadow might vary, some argue it should be at least twice the size of the body, but one thing is for sure; the bigger the shadow/wick, the bigger and stronger the reversal.