Advanced Bearish Candlestick Cheat Sheet

April 06, 2017 11:13

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Dear Traders,

Candlesticks have been one of my favourite tools ever since I started developing PNT (Practical Naked Trading) method. Taking inspiration from Steve Nison, PNT was based on different patterns that are the core of price action. Those high profit trading patterns exist within the scope of Forex and financial markets, and I think they are very useful in both day and swing trading.

Candlesticks should provide different visual cues that make understanding price action easier. Different time frame trading with Japanese candlestick chart allows traders to better understand the market sentiment. In my opinion, candlestick chart offers a greater depth of information than traditional bar chart.

In the bar charts, high and low are emphasised more than anything else, while Japanese candlesticks give emphasis to the relationship between the open price and close price.

Traders who use different candlestick patterns should identify different types of price action that tend to predict reversals or continuations of trends. Additionally, when we combine them with other technical analysis tools, we should get an accurate estimate of possible price movement. Keep in mind that advanced candlesticks might be also valid profitable patterns in stock trading.

Like all candlestick formations, if you catch it bouncing off of a support/resistance, you might assume it is pretty reliable. But don't rely on just candlestick formation – back it up with other tools and create your own trading zone.

In the cheat sheet below, you will learn to differentiate between various advanced bearish candlestick patterns.

Bearish Reversal Patterns

3 Black Crows

The number of candles in the configuration – 3

  1. The market is characterised by an uptrend.
  2. Three consecutive normal or long black candlesticks are seen in the chart.
  3. Each candlestick opens within the body of the previous candle.
  4. Candlesticks progressively close at new lows, below the preceding candle.

3 Inside Down

The number of candles in the configuration – 3

  1. The market is characterised by a prevailing uptrend.
  2. We see a Bearish Harami (or a Harami Cross) pattern in the first two candles.
  3. After that, we see a black candlestick on the third candle with a lower close than the second candle.

Evening Star

The number of candles in the configuration – 3

  1. The market is characterised by an uptrend.
  2. We see a white candlestick as the first candle.
  3. After that, we see a short candlestick on the second candle that gaps in the direction of the uptrend.
  4. A black candlestick is spotted as the third candle.

Upside 2 Crows

The number of candles in the configuration – 3

  1. The market is characterised by a prevailing uptrend.
  2. A normal or long white candlestick appears as the first candle.
  3. The second candle is a short black candlestick that goes up.
  4. On the last candle, another black candlestick opens at or above the open and then closes below the close of the previous candle, though still above the close of the first candle.
  5. This pattern has a variation that is shown in the chart above. When the third candle closes below the second one, it shows a variation one of the pattern.

Harami

The number of candles in the configuration – 1

  1. The market is characterised by a prevailing uptrend.
  2. A white body is observed as the first candle.
  3. The black body that is formed on the second candle is completely engulfed by the body of the first candle.

Bearish Abandoned Baby

The number of candles in the configuration – 3 or 4

  1. The market is characterised by an uptrend.
  2. A white candlestick is observed as the first candle.
  3. Then we see a Doji on the second candle whose shadow stretches above the upper shadow of the previous candle.
  4. Third or fourth candle's black candlestick gaps in the opposite direction with no shadows overlapping.

Meeting Lines

The number of candles in the configuration – 3

  1. The market is characterised by an uptrend.
  2. A white candlestick is observed as the first candle.
  3. We see a black candlestick as the second candle.
  4. The closing prices are the same or almost the same on both candles.

Dark Cloud Cover

The number of candles in the configuration – 2

  1. The market is characterised by an uptrend.
  2. A white candlestick appears as the first candle.
  3. A black candlestick opens on the second candle and closes more than halfway into the body of the first candle.
  4. The second candle fails to close below the body of the first candle.

Advance Block

The number of candles in the configuration – 3

  1. The market is characterised by an uptrend.
  2. A white candlestick appears as the first candle.
  3. The next two candles are white candlesticks, with each closing above the previous candle's close and having an opening within the range of the previous candle's body.

Bearish Continuation Patterns

Falling 3 Methods

Number of candles in the configuration – 3-6

  1. The first candle in the pattern is a long black candlestick within a defined downtrend.
  2. A series of ascending small-bodied candlesticks that trade within the range of the first candlestick.
  3. A long black candlestick creates a new low, which cues that the sellers are back in control of the direction.

Side By Side White Lines

Number of candles in the configuration – 3

  1. The first candle we see is a long black candle.
  2. The second candle is white candle, opening below the low of the first candle and closing barely into the body of the first candle.

Bearish 3 Line Strike

Number of candles in the configuration – 4

  1. The first three candles make up the Three Black Crows formation or similar two candlestick pattern (variant 2).
  2. The last candle is a white candle that opens below the third candle and closes above the first candle's open or the second candle's open (variant 2).

Marubozu Bearish

Marubozu defines strong sell off the resistance or strong buying off the support. Marubozu is also known as momentum candles.

There are only two groups of people in the Forex market. There are buyers and sellers. We want to find out which group is in control of the price action now. We use candles to figure that out.

Wide range candles state that there is high volatility (interest in the currency pair) and narrow range candles state that there is low volatility (little interest in the currency pair). Low volatility leads to high volatility and high volatility leads to low volatility.

So, in order to keep your account safe during the period of high volatility, you should analyse candles themselves and also apply Volatility Protection Settings.

MT4 Supreme Edition + Volatility Protection

Cheers and safe trading,

Nenad