You need to admit when you're in a bad trade early on and get out of the position quickly. When you recognize bearish candlestick pattern signals immediately, you can act promptly to limit your losses. Here are some of the most reliable reversal candlestick patterns leading into a bearish market:
* Bearish Abandoned Baby - 3 candle reversal formation; in uptrend, a long white candle forms and the 2nd day gaps up to create a Doji or Spinning Top. The 3rd day gaps down and creates a long black candle.
* Dark Cloud Cover - 2 candle reversal; a white day is followed by a gap up in the morning. The market falls throughout the 2nd day with the close below the midpoint of the 1st day.
* Evening Doji Star - 3 candles; same as Bearish Abandoned Baby except with a shorter 3rd day
* Evening Star - 3 candles; same as Evening Doji Star except with a Spinning Top instead of a Doji
* Three Inside Down - 3 candle reversal; in an uptrend, a white and black Harami forms and the 3rd day opening is about the midpoint of the 2nd day. It trades down and closes outside the range of the 1stday.
* Three Outside Down - 3 candle pattern; in an uptrend, the 1st two days are an engulfing pattern. The 3rd day closes below the range of the 2nd day.
The following are some moderately reliable bearish candlestick patterns:
* Bearish Advance Block - 3 white candles consecutively open within the previous candle body. Each closes higher than the last but is consecutively shorter with a longer upper shadow than the previous candle.
* Deliberation - 3 candles form similar to the Bearish Advance Block, except the 3rd day is a Spinning Top gapping up and can be either black or white.
* Downside Tasuki Gap - 3 candles; 1st two days are black with a gap in between. On the 3rd day it opens within the body of the 2nd day and trades up into the gap but does not close it.
* Dragonfly Doji - 1 candle has all shadow and no body. The open and close are at the top of the day's range.
* Engulfing - 2nd day candle completely engulfs the range of the 1st day
* Gravestone Doji - 1 candle has all shadow and no body. The open and close are at the bottom of the day's range.
* Hangman - 1 candle is short with a long shadow on the bottom
* Meeting the Lines - In an uptrend, a long white candle is followed by a gap up in the opening. Trading continues lower to form a long 2nd day black candle that closes the same as that of the 1st day.
Finally, here are some of the only slightly reliable bearish candlestick patterns:
* Belt Hold - 1 candle reversal; in an uptrend, a long black candle forms with no upper shadow
* Bearish Harami - 2 candle reversal; often the start of Three Inside Down; long white candle followed by a smaller, engulfed black one
* Harami Cross - 2 candle reversal; in an uptrend, a long white candle forms and the 2nd day is a doji completely within the body of the 1st day
* Shooting Star - 1 candle reversal; a gap above the prior trend occurs with a small body and a long shadow on top
* Tweezers Top - 2 candle reversal similar to the Harami Cross without the doji; 1st and 2nd day highs are the same with a 2nd day pullback
Differences Between Forex and Other Markets
Forex (FX) traders rely heavily on candlestick charts. However, the patterns express themselves differently in the currency markets. For example, there are no gaps when trading in FX. This can create some confusion as two normally different patterns may express themselves similarly on a Forex candlestick chart.
A Harami Cross and the first two days of an Evening Star will look very different on the stock exchange but identical to one another on FX. One is a weak bearish candlestick pattern signal while the other is a very rare but strong reversal pattern. Two patterns with basically the same meaning (Bearish Abandoned Baby and Evening Star) look exactly the same in FX.
In both markets, a Shooting Star looks like an Inverted Hammer. But these are in very different positions based on the trend leading up to the relevant candle. The Shooting star will be at the long end of a bullish trend signaling a bearish reversal. An Inverted Hammer will be at the bottom of a bearish trend where the bulls take over.
Bear market candlestick reversal patterns are probably more important to understand than their bull market counterparts. The key again to these patterns is to enter with both a correction in mind as well as a full blown reversal. Fibonacci analysis will help in determining these levels. For a complete guide to mastering these techniques visit our site at http://www.candlestickgenius.com
Article Source: http://EzineArticles.com/?expert=Mark_Deaton
Kamis, 04 Maret 2010
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