5 important single candlestick patterns - Part 2

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This chapter is a continuation of the previous one. Here, we’ll continue to touch upon another set of 5 important single candlestick patterns, starting with the hanging man.  

1. Hanging Man 

The hanging man is very similar to the hammer, where the body of the candle is short and appears on the upper end. The pattern, in order to qualify as the hanging man, has to either leave a short upper shadow or no shadow at all. And, the length of the lower shadow should be at least two times longer than that of the candle’s body. Here’s what the hanging man looks like.  

         

Inference: The pattern looks really similar to the hammer doesn’t it? Nevertheless, there are a couple of differences between the two. Firstly, the hanging man appears when there is the possibility of a reversal from a bullish to a bearish trend. Secondly, it is always preceded by a bullish trend and appears right at the top of the trend. 

The long lower shadow signifies that the bears are trying to take control of the price movement. It essentially indicates the arrival of sellers in the market, who are trying to bring the price down. The longer the lower shadow is, the stronger the bears’ influence is. 

Similar to the hammer, the hanging man can either be green (where the closing price is higher than the opening price) or red (where the closing price is lower than the opening price). Once the hanging man is confirmed in an uptrend, the trend is likely to reverse with the prices going back down. 

Again, it is a good idea to confirm the reversal trend by taking a look at the next pattern before going in for a trade. For example, if the price of a stock opens lower than the hanging man’s close, a reversal is said to be impending.

2. Inverted Hammer

As the name suggests, the inverted hammer is basically the hammer candlestick pattern in an inverted form. Here, the body is short and appears at the lower end of the candle, with a long upper shadow. To be classified as an inverted hammer, the candle should either leave a short lower shadow or no shadow at all. Here’s what the pattern looks like. 

         

Inference: The long upper shadow of the inverted hammer is required to be at least 2 times longer than that of the body. The shadow signifies the bulls trying to shift the market over to their side by driving the prices up, but not being able to successfully do so due to an increased selling pressure, which ultimately drives the prices back down.

The inverted hammer is a bullish reversal signal and can be found at the end of a downtrend. As with the hammer and the hanging man, the colour of the inverted hammer is not of much significance here as it can appear either in green or in red. 

Once the inverted hammer pattern is confirmed at the end of a downtrend, it is advisable to check for a higher open and close in the next pattern to confirm the bullish signal. 

3. Shooting star

The shooting star pattern features the same structure as the inverted hammer. With a long upper shadow and a short body, the shooting star may or may not leave a short lower shadow. The length of the upper shadow should be at least two times longer than that of the body.

          

Inference: Unlike the inverted hammer, the shooting star is a bearish reversal signal that can be found in an uptrend. The longer the upper shadow, the stronger the impending reversal is likely to be. Since the shooting star occurs at the end of a bullish trend, the increased selling pressure has the ability to drive a trend reversal. If the opening price of the next pattern is lower than the closing price of the shooting star, the bearish trend reversal signal is said to have been confirmed.

4. Bullish marubozu

In the Japanese language, the word ‘marubozu’ stands for ‘bald.’ The marubozu candle has only the body with no upper or lower shadows, making it look sort of bald. Unlike the other single candlestick patterns that we previously looked at, the marubozu is not dependent on any prevailing trend. It can appear anywhere on the candlestick chart. The pattern for the bullish marubozu looks like this.

Inference: In a bullish marubozu candlestick, the opening price is equal to the lowest trading price and the closing price is equal to the highest trading price of the day. Due to this reason, there’s absolutely no upper or lower shadows whatsoever. That said, a bullish marubozu is allowed to have a slight variation between the open and low prices and the close and high prices. 

This candlestick pattern essentially signifies that the bulls had complete control over the market on the particular day. Irrespective of the previous or the prevailing trend, the bullish marubozu indicates a sudden change in the market sentiment with the stock entering the territory of bulls. This rapid and strong change in the sentiment is very likely to continue for the next 2 to 3 trading sessions and can be construed as a buy signal.

5. Bearish marubozu

The bearish marubozu candle also has only the body with no upper or lower shadows and isn’t dependent on any prevailing trend. Its appearance on the candlestick chart can be random and not based on any trend. This is what a bearish marubozu looks like.

Inference: Here, the opening price is equal to the highest trading price and the closing price is equal to the lowest trading price of the day. Similar to a bullish marubozu, the bearish marubozu candlestick is also allowed to have a slight variation between the open and high prices and the close and low prices. 

The pattern indicates complete domination of the market by the bears with intense selling pressure all throughout the trading day. The bearish marubozu signifies a sudden shift in the market sentiment in favour of the bears. Without any prevailing trend, this strong bearish market sentiment has a high chance of continuing on for the next few trading sessions, which can be construed as an opportunity to sell or short a stock.

Wrapping up  

Alright then, those were some very interesting single candlestick patterns, right? It gets even better when we bring multiple candlesticks into the picture. Let’s head to the next chapter to study multiple candlestick patterns.

A quick recap 

  • The hanging man is very similar to the hammer structurally. But it appears when there is the possibility of a reversal from a bullish to a bearish trend. And it is always preceded by a bullish trend and appears right at the top of the trend. 
  • The inverted hammer is basically the hammer candlestick pattern in an inverted form. Here, the body is short and appears at the lower end of the candle, with a long upper shadow.
  • The inverted hammer is a bullish reversal signal and can be found at the end of a downtrend.
  • The shooting star pattern features the same structure as the inverted hammer. But unlike the inverted hammer, the shooting star is a bearish reversal signal that can be found in an uptrend.
  • In a bullish marubozu candlestick, the opening price is equal to the lowest trading price and the closing price is equal to the highest trading price of the day. Due to this reason, there’s absolutely no upper or lower shadows whatsoever. This candlestick pattern essentially signifies that the bulls had complete control over the market on the particular day.
  • In a bearish marubozu, the opening price is equal to the highest trading price and the closing price is equal to the lowest trading price of the day. This pattern indicates complete domination of the market by the bears with intense selling pressure all throughout the trading day. It signifies a sudden shift in the market sentiment in favour of the bears.
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