Best candlestick patterns for day trading

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Hello guys. I hope you all are doing good. If you are a beginner and wanted to know what are the best candlestick patterns for day trading and how to read them? Then you are at the right place. In this article, I’m sharing a complete guide to reading and analyzing the best candlestick patterns for day trading and how beginners can use them and earn money easily. So read this post till the end to know how I make use of them and how you can too, to generate your daily return.

Trading is a form of exchange that has a dependency on many factors to be profitable by the end of the day. One such factor which plays a vital role in trade, especially intra-day trade is the candlestick patterns. These are the most predominantly used means of determining the trade as it acts as a visual and a statistical representation of a trade.

In this article, I will share what are candlestick patterns? and a beginner like you, how you can trade effectively by analyzing them correctly. Which ones are the best and How to read them properly. So without wasting your time, let us jump to the first section i.e. introduction to Candlestick Patterns.

Introduction to Candlestick Patterns

candlestick patterns for day trading

This system was first interpreted in Japan and as “The Candlestick trading bible” which is one of the most powerful trading systems in history. It was invented by Homma Munehis, The father of the candlestick chart pattern.

This trader is considered to be the most successful trader in history, he was known as the God of markets in his days, his discovery made him more than $10 billion in today’s dollar. This trading system is based on Japanese candlestick patterns in combination with technical analysis.

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The Candlestick trading bible is the trading method that is going to finally take your trading to where it should be, consistent, profitable, easy and requires very little time and effort.

Learning Japanese candlestick is like learning a new language. Imagine you got a book which is written in a foreign language, you look at the pages but you get nothing from what is written in it. The same thing when it comes to financial markets. If you don’t know how to read Japanese candlesticks, you will never be able to trade the market.

Japanese candlesticks are the language of financial markets, if you get the skill of reading charts, you will understand what the market is telling you, and you will be able to make the right decision at the right time.

Overview of Candlesticks:

Candlestick is used as means of predicting the next move in technical analysis. This is used in almost all forms of trade on equities, F&O, Forex, Crypto-currency trading, etc.  

Candlesticks Anatomy:

Just as humans, candlesticks have different body sizes, and when it comes to trading, it’s important to check out the bodies of candlesticks and understand the psychology behind them.

Candlestick patterns:

Candlestick patterns are an integral part of technical analysis, candlestick patterns emerge because human actions and reactions are patterned and constantly repeated. This helps us to recognize the most important candlestick patterns, the psychology behind their formation, and what do they indicate when they form in the market.

The Market structure:

This helps us to identify trending markets, ranging markets, and choppy markets. It also depicts us as to how to draw resistance, support, and trend line.

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Time frames and top-down analysis:

Multiple time frame analysis is very important for you as a price action trader. It helps us to analyze the market using the top-down analysis approach.

Trading strategies and tactics:

There are four price action strategies involved in trading such as:

  1. The pin bar strategy.
  2. The engulfing bar strategy.
  3. The inside bar strategy.
  4. The inside bar false breakout strategy.

Money management:

It is important to learn how to create a money management and risk control plan that will allow you to protect your trading capital and become consistently profitable.

What is a candlestick?

candlestick

Japanese candlesticks are formed using the open, high, low, and close of the chosen time frame.

  1. If the close is above the open, we can say that the candlestick is bullish which means that the market is rising in this period. Bullish candlesticks are always displayed as white candlesticks. Most trading platforms use white colour to refer to bullish candlesticks. But the colour doesn’t matter, you can use whatever colour you want.  The most important thing is the open price and the close price.
  2. If the close is below the open, we can say that the candlestick is bearish which indicates that the market is falling in this session. Bearish candles are always displayed as black candlesticks. But this is not a rule.

We can find different colors used to differentiate between bullish and bearish candlesticks.

  • The filled part of the candlestick is called the real body.
  • The thin lines poking above and below the body are called shadows.
candlestick

Long bodies refer to strong buying or selling pressure, if there is a candlestick in which the close is above the open with a long body, this indicates that buyers are stronger and they are taking control of the market during this period.

Conversely, if there is a bearish candlestick in which the open is above the close with a long body, this means that the selling pressure controls the market during this chosen time frame.

Short and small bodies indicate a little buying or selling activity.

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Candlestick shadows (tails)

The upper and lower shadows give us important information about the trading session.

  • Upper shadows signify the session high
  • Lower shadows signify the session low

Candlesticks with long shadows show that trading action occurred well past the open and close.

Candlestick Patterns:

Candlestick patterns are one of the most powerful trading concepts, they are simple, easy to identify, and very profitable setups, research has confirmed that candlestick patterns have a high predictive value and can produce positive results. Multiple candlestick patterns, in general, denote the strength of buying and selling in a market.

This oppression over the trends determines the price of the stocks. Each of the candlestick patterns provides a pristine knowledge and analysis to determine the nature and way in which the market proceeds. For intra-day trading, where the trade has to be completed within that single trading day, candlestick patterns play an inevitable role as it helps to determine the nature, flow, volatility, volume of trade and variations, etc.;

Types of the market:

As far as the markets are concerned, it can be a trending market or a range-bound market.

Trending market:

These markets denote the movement in a particular trend for a particular instant of time.it may be an uptrend or a downtrend. It may represent either the bullishness or bearishness of the market.

For an uptrend market, there are more buyers than sellers as of which the price increases. In case of a downtrend which denotes the bearishness, i.e. there are more sellers than buyers at that instant of time.

Range-bound market:

This denotes the choppiness or the low variations in the trends of the market. There is no constant force from buyers and sellers. The market fluctuates within a specific range for a prolonged time. Neither of the two gets more beneficial due to the choppiness of the market.

What are the best candlestick patterns for day trading?

To be honest, there is nothing as best candlestick pattern because it is subjective. Buying and selling are the two extremes of trade. So a pattern cannot be beneficial for both parts of the trade. These candlestick patterns reveal the strength of both buyers and sellers. The candlestick denoting the dominance of buyers may be a burden to sellers.

So at the end of the day, no pattern is a common beneficial pattern. Each of them is subjected to its kind. There are multiple candlestick patterns involved to determine the nature of trade.

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Most commonly used candlestick patterns for day trading:

  1. Doji candle.
  2. Engulfing candle
    • Bearish Engulfing.
    • Bullish Engulfing.
  3. Morning star candle.
  4. Evening star candle.
  5. Hammer(pin) bar candle pattern.
  6. Shooting star bearish pin bar.
  7. Harami (inside pin) bar pattern.

Doji Pattern:

Doji Pattern

These are the easiest to identify candlestick patterns as their opening and closing price are very close to each other. The candle thus looks like a plus sign with a chance that the highs and lows wicks of the candle being of different lengths. These are neutral patterns.

However, they gain significance if they appear after a period of steady buying or selling. By itself, a Doji signals an end of the previous move.

As they open and close are near the same level, it signifies the end of buying in an uptrend and an end of selling in a downtrend. This does not necessarily mean that there will be a V-shaped move on the other side (this can be the case also), but brakes have been put to the previous trend. A Doji occurring in a range-bound movement has little significance.

Engulfing Pattern:

Engulfing Pattern

A two candle pattern, engulfing pattern is one of the most powerful patterns in candlesticks. It occurs when the second candle (latest candle) completely overshadows the previous candle or completely engulfs the previous candle. Symbolically it means that buyers have overpowered the sellers or vice versa.

There are two types of Engulfing patterns – Bullish Engulfing Pattern and Bearish Engulfing Pattern.

Bullish Engulfing Pattern:

Bullish Engulfing Pattern

As the name suggests a bullish engulfing pattern is a bullish indicator suggesting a possible up move. In this case, the second candle’s body (a bullish one) completely engulfs the previous day’s candle. Both the tails or wicks of the candle of the first bar are covered by the second candle.

The pattern suggests that bulls have taken over from the bears and are likely to start an up move. Such patterns are powerful if they are formed at the bottom of the correction in a bull move or near the bottom of a bear move. Such patterns are also seen at the end of consolidation.

Bearish Engulfing Pattern:

Bearish Engulfing Pattern

A bearish engulfing pattern is the opposite of its bullish cousin. It occurs near the top of an up move or at the top of a correction move in an overall bear market. The pattern signals that the bears have won the fight against the bulls and can push the stock downward.

The second candle (a bear candle) in a Bearish Engulfing Pattern engulfs the previous candle, which is smaller in size. Both the tails of the candle are covered (engulfed) by the bigger bear candle.

Morning Star Pattern:

Morning Start Pattern

A Morning star is a bullish three candle pattern that is formed at the bottom of a down move. The first candle in the morning star formation is a big bearish candle that clearly defines the down move. The second candle is a small candle, which is ideally a Doji candle. The third candle is a large bullish candle that closes near the top of the day.

The pattern signifies extreme selling as witnessed in the first candle, followed by a change of power as shown in the second candle and finally the bulls taking over and regaining lost ground.

Evening Star:

Evening Start Candlestick Pattern

An exact mirror image of a Morning Star is an Evening Star. This occurs near the top of a rally and is a three candle formation.
The first candle is a long bullish candle which is followed by a small candle which ideally should be a Doji candle.

The third candle is a long bearish candle that signals the end of the bull move. The formation signals the change in power from the rampaging bulls in the first candle that is stopped at the second candle with a change of power being witnessed in the small Doji candle. The third big bear candle betrays the winner and the possible move going forward.

Hammer pin:

Hammer Candlestick Pattern

The Hammer candlestick is formed when the opening high and closing price is most of the same level; It also has a longer down wick when compared to the upper wick after which the market raises due to the bullishness from buyers.

Shooting star (bearish pin):

Shooting star (bearish pin)

The shooting star pattern is formed when the open and closing low prices are more or less the same prices where the candle forms a longer lower wick than the upper wick. It is the hammer pattern with seller dominance.

Professional technicians say that the shadow would be two times the length of the body to exhibit strength.

Harami pattern (inside bar):

Harami pattern (inside bar)

The harami pattern is considered to reverse the trend of the market when it occurs., and is of two types:


The first candle is larger than the second candle, it is called the mother and baby candle respectively. A dominant harami pattern has the second candle closing outside the prior candle. This acts as a reversal pattern at the top of the uptrend market and bullish on occurring at the bottom of the downtrend.

This is classified into two types:

  • Bullish harami.
  • Bearish harami.

In the above pattern, the first bullish harami pattern occurred at the bottom of a downtrend, sellers were pushing the market lower, suddenly price starts consolidating, and this indicates that the selling power is no longer in control of the market.

The bearish harami is the opposite of the bullish, this one occurred at the top of an uptrend indicating that buyer’s domination is over and the beginning of a downtrend is possible. When this pattern is created during an uptrend or a downtrend, it indicates a continuation signal with the direction of the market.

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Conclusion: Candlestick patterns for day trading

Thus, the candlesticks pattern acts as a tool to depict the performance of the current market and helps to analyze and predict the future market. This acts as a medium of representation and helps in understanding the market to maximize profit. This is one of the most preferred methods in technical analysis. These patterns along with appropriate price action and indicators help to have a better analysis of the market and give clarity on what, how, and when to trade to make the best use out of it.

Post your comments in the comment box if you have any query related to candlestick patterns for day trading and how to trade it? You can ask any question related to trading in the comment box.

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Avatar of Sachin Sival

Sachin Sival is the founder and CEO of Replete Equities, an options trading company that specializes in delta hedging. A self-taught trader, Sachin has a passion for volatility trading and stock trading. Sachin loves to hone his skills by reading up on new strategies and techniques as well as taking part in industry events. In addition to being a successful entrepreneur, Sachin also takes pleasure in photography - as a hobby.

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