Candlestick patterns are essential tools for traders to understand market sentiment. TradingView’s Supercharts offers advanced features that make identifying and interpreting these patterns easy.
Here’s a step-by-step guide on how to read candlestick patterns using TradingView Supercharts.
Step 1: Understanding the Basics of Candlesticks
A candlestick on the chart provides four key data points:
- Open Price: Where the price starts during the time period.
- Close Price: Where the price ends during the time period.
- High Price: The highest price reached.
- Low Price: The lowest price reached.
The body of the candlestick shows the price range between open and close, while the wicks (or shadows) represent the high and low prices. Candles can be bullish (usually green) when the close is higher than the open, or bearish (red) when the close is lower than the open.
Also Read: How Supercharts in Trading View Improve Your Trading?
Step 2: Common Candlestick Patterns and Their Meaning
Below are key candlestick patterns to know:
A. Doji
A Doji is a candlestick pattern that shows indecision in the market. The open and close prices are nearly identical, resulting in a very small or non-existent body. This suggests that buyers and sellers are evenly matched, and neither side is able to take control. The Doji can appear in various forms, such as:
- Long-Legged Doji: Features long wicks, showing significant market movement before settling back to near the opening price. It indicates uncertainty and potential market reversal.
- Dragonfly Doji: Occurs when the open, close, and high prices are nearly the same, with a long lower wick. This can be a bullish reversal signal, particularly at the end of a downtrend.
- Gravestone Doji: Forms when the open, close, and low prices are the same, with a long upper wick. This is considered a bearish signal, especially at the top of an uptrend.
The context in which the Doji appears is crucial; if it forms at a significant support or resistance level, it may be more reliable as a reversal signal.
B. Hammer & Hanging Man
These single-candlestick patterns are important for identifying potential reversals:
- Hammer: Appears at the bottom of a downtrend and has a small body with a long lower wick, indicating that sellers pushed the price down, but buyers stepped in to push it back up. The long lower wick shows that buyers are gaining strength, suggesting a potential reversal to the upside.
- Hanging Man: The opposite of a Hammer, it occurs at the top of an uptrend and has the same structure (small body, long lower wick). It shows that sellers are beginning to overpower buyers, indicating a possible downward reversal.
Both patterns require confirmation from the following candlesticks or additional indicators to ensure the reversal is strong.
Also Read: Key Features of TradingView’s Supercharts
C. Bullish/Bearish Engulfing
Engulfing patterns consist of two candles where the second completely “engulfs” the first:
- Bullish Engulfing: Occurs during a downtrend, where a small bearish candle is followed by a larger bullish candle. This shows that buyers have taken control, often leading to a strong upward reversal. The larger the bullish candle, the stronger the signal.
- Bearish Engulfing: Forms in an uptrend when a small bullish candle is followed by a large bearish candle. It suggests that sellers have overwhelmed buyers, leading to a potential reversal to the downside. This pattern is particularly strong if it appears after a prolonged uptrend.
Engulfing patterns are more reliable when they occur at key support or resistance levels and are supported by increased volume.
D. Morning Star & Evening Star
These are powerful three-candle patterns that signal major trend reversals:
- Morning Star: A bullish reversal pattern that appears after a downtrend. It consists of three candles: a long bearish candle, a small-bodied candle (which could be bullish, bearish, or a Doji), and a long bullish candle. The Morning Star pattern shows that the bearish momentum is weakening, and buyers are stepping in to reverse the trend.
- Evening Star: A bearish counterpart to the Morning Star, it forms after an uptrend and signals a reversal to the downside. It begins with a long bullish candle, followed by a small-bodied candle, and ends with a long bearish candle. The transition shows that buying pressure is diminishing and selling pressure is increasing.
These patterns are highly effective when confirmed by high trading volume or other indicators like moving averages.
Also Read: How Do Supercharts Improve Your Stock Market Predictions?
E. Shooting Star & Inverted Hammer
Both these patterns indicate market rejection at certain price levels:
- Shooting Star: Appears at the top of an uptrend, with a small body and a long upper wick. It indicates that the market attempted to push higher but faced strong selling pressure, resulting in the price falling back. This can signal a bearish reversal as the sellers gain control.
- Inverted Hammer: Typically forms at the bottom of a downtrend, with a small body and a long upper wick. It shows that buyers tried to push the price higher but faced resistance, yet it suggests that buying interest is growing. This can be a sign of an impending reversal to the upside, though confirmation from subsequent candles is important.
Both patterns reflect a tug-of-war between buyers and sellers, with the longer wicks signaling price rejections and potential reversals.
Step 3: Applying Candlestick Patterns on TradingView Supercharts
Access Candlestick Patterns Indicators:
- Open TradingView’s Supercharts.
- Go to the Indicators and Strategies menu.
- Select the Candlestick Patterns tab to view available patterns.
Select Your Patterns:
- Choose specific patterns you want to see. Once added, the chart will label bullish indicators in blue, bearish in red, and neutral patterns in gray.
Interpret the Labels:
- Hover over the pattern labels for detailed descriptions and guidance on how to act based on that pattern.
Step 4: Enhance Your Analysis with Additional Tools
- Use Context: Always analyze candlestick patterns within the broader market trend. A pattern near a key support or resistance level is more reliable than one in isolation.
- Incorporate Volume: A pattern with high trading volume is a stronger signal.
- Use Other Indicators: Combine candlestick patterns with other technical tools like RSI, MACD, or moving averages for more reliable predictions.
Step 5: Set Alerts for Candlestick Patterns
- Open the Create Alert menu in TradingView.
- Set up an alert for the candlestick pattern indicator, ensuring that you receive real-time notifications when patterns form.
Also Read: Why Should Traders Use Supercharts for Technical Analysis?
Conclusion
Candlestick patterns offer a window into market sentiment, providing insights into potential reversals and continuations. With TradingView’s Supercharts, identifying these patterns becomes easier.
By combining candlesticks with other technical tools and market context, traders can enhance their decision-making and trading strategies.
