Candlesticks: Patterns Signalling Range-Trading : #AnirudhSethi

  • What is a Japanese Candlestick in Forex Trading? -
    • Psychological state of uncertainty.
  • Engulfing / Outside bars
    • This pattern must appear after a preceding trend in the price.
    • An outside bar would have taken out the stops of both the bulls and the bears, with no follow-through. Hence both sides become less confident and this leads to range-trading behavior.
  • Hammer bottom
    • After a downtrend, the market opens near to the previous close, drops a lot, before closing the period up towards the level at which it opened.
    • Signals an end of the downtrend where the next period will be characterised by range trading.
  • Shooting star
    • After an uptrend, the market opens near the previous close, rallies a lot, but closes the period down towards the level at which it opened.
    • Signals that that supply and demand have become more balanced, and this balance can mean range trading.
  • Hanging man
    • After an uptrend, market does not rise much but falls a lot, before closing back up near to the level at which it opened.
    • This is bearish, and represents the last buyers getting into the uptrend.


BAASC - Classic Charts Patterns and Stock Market Poster Pack of 6 (Size 9 x  12 inch)(Multicolor) : Home & KitchenOrthodox Patterns: Range-Trading Within the Pattern, Trend-Trading After Breakout

  • Ascending triangles
    • Generally bullish, range-bound regime within triangle and switches to a trending regime at breakout.
  • Descending triangles
    • Generally bearish.
  • Symmetrical triangles
    • Psychology is one of complete uncertainty.
  • Rectangles
    • Buyers and sellers in fierce competition within the rectangle range
  • Flags
    • Scaled down rectangles. Range-trading regime that comes after a strong trending move, and that normally leads to a continuation of the trend.
  • Pennants
    • Scaled down symmetrical triangles.
  • Broadening patterns
    • Good opportunity to trade the range.
    • Edwards and Magee point out that broadening bottoms do not occur in stocks because the psychology behind the pattern is suited only to tops (i.e. a very excited public getting involved near the top of a trend). The eventual break (to the downside for a broadening top) should provide for quite a strong trending regime.
  • Head and shoulders
    • Trend exhaustion and reversal pattern at the end of an uptrend.
    • Period when the H&S pattern is forming, is more often than not a range-trading regime.
  • Reverse Head and Shoulders
    • Trend exhaustion and reversal pattern at the end of a downtrend.
  • Double tops and bottoms
    • Signals an important trend reversal that will usually be accompanied by a strong trending regime.
  • Rising wedge
    • Market is fighting for its life to delay the inevitable decline. It becomes harder and harder for the market to rally but it does continue to make slight new highs.
    • Usually occurs around major turning points and at the end of long trends.
  • Falling wedge
    • Opposite of rising wedge. Demanders eventually win out against the powerful but ultimately limited suppliers.
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