Have you ever wondered when is the right time to buy the currency you want? In fact, you have used various technical indicators but are still confused about how to read them? Well, maybe it’s time for you to study the price action patterns depicted in candlestick patterns.
The reason why candlesticks can be used as a reference for determining whether to open a buy or sell position is because the shape of this chart directly depicts price movements and trading volume in the market. So, traders can find out how the current market conditions are just by looking at the candlesticks that are formed.
Candlestick Patterns To Open Buy Positions
So, what are the candlestick patterns that are suitable for buy position signals? Here is the discussion:
1. Bullish Pin Bar
Bullish pin bar is one of the candlestick patterns that indicates a reversal pattern (reversal pattern). This candlestick is shaped like a hammer with a long lower tail and a small chart body above it. More or less it looks like 1: Bullish Pin Bar Example (Source: MIFX)
This chart indicates that the power of the bulls (buyers) is starting to take over the transaction. Therefore, this candle signal will be more accurate if:
Body size is not more than 50% of the entire candle. The size of the tail above the candle is small or even non-existent. The smaller the body size, the more accurate the signal will be.
If this pattern appears on the screen of your trading application and other technical indicators support it, then you can open long positions at the closing price level.
2. Bullish Engulfing
Bullish engulfing is a pattern consisting of two candles where the second candle is larger than the first so that the second candle seems to “eat” the first candle.
Here is a picture of this pattern:
Bullish engulfing can be a buy signal if:
Located after the bearish trend. The lowest price of the second candle was lower than the first, but closed at a higher price than the previous candle the size seems bigger.
Although it is generally considered to have a higher level of accuracy, just like the previous pattern, you still use other technical indicators for confirmation.
3. Bullish Piercing
The shape of the bullish piercing candlestick pattern is almost similar to the bullish engulfing. The difference is, the height of the second candle is only half less than the height of the first candle. A bullish piercing pattern can be used as a reference for long positions if:
This pattern was preceded by a bearish trend. If the bullish piercing is found in the rising price trend, it means that there will be a change in the price trend but not significant. The second candle occurs at the opening of the next forex trading session or the next day and there is a price gap between the close and the open between the first and second candles. The size of the second candle is at least half of the first candle. This is to show that in the trading session, the bulls (buyers) began to take over the market).
Sadly, piercing is one of the patterns that is quite often found in the stock market but rarely in the forex market. This is because the forex market tends to be more liquid than stocks, so it is rare to find a gap between two candlesticks that appear in succession.
4. Morning Star
Similar to the three patterns above, a candlestick with a morning star pattern is a pattern that shows a reversal from bearish to bullish. This pattern consists of 3 candles A, B and C where A is red or black (bearish), B is a doji and C is a white or green bullish candlestick.
This pattern is suitable for open long positions because the presence of a doji in the middle and a bullish candle at the end indicates that the bull power that was previously weak in the first candle has begun to take over.
The opposite of this pattern evening star pattern which indicates that the bear team (seller) that previously lost in the rally is starting to be stronger than the bull team (buyers).
5. Three White Soldiers
The last pattern to open long positions is the Three White Soldiers pattern or three white knights. As the name implies, this pattern consists of 3 white or green candles A, B and C that appear sequentially. Although the Three White Soldiers is a fairly strong price reversal signal, the results of this signal will be more credible if:
The candle is preceded by a doji candle. Because, the doji indicates that the strength of bulls and bears are equally strong, so the market is indecisive. The lowest and highest prices of candle B are higher than A, the lowest and highest prices of C are also higher than B, so the curve pattern is like three steps. The three candles do not have tails or if they do, their tails are only short. This condition indicates that the bulls managed to push the market price to stay high.
The opposite of the Three White Soldiers is the Three Black Crows where 3 red or black candles appear arranged like a descending ladder. Just like the Three White Soldiers, the Three Black Crows is also a strong reversal signal.
How to use candlesticks to open long positions
There are three alternative ways that you can do to open long positions using candlestick patterns, namely:
1.Open buy when the pattern is not fully formed. The first method is considered the most risky because you don’t know whether the pattern is really formed completely or just giving a false signal.
2.Open buy when there is a breakout at the closing price of the last candle. This second method is relatively lower risk than the first method because you definitely know that the candlestick pattern in question has occurred.
3.Open buy when the price on the last candle breaks the highest level. The lowest risk way is to just open a long position when it’s true occurs on the third candle. Thus, the pattern has been officially formed and most likely the price will move in the expected direction.
So that was it, some candlestick patterns that you can use to open long positions. You need to remember that even though experts judge the signals from the candlesticks above to be quite accurate, it is better for you to keep using other technical indicators in addition.