How to Trade Powerful Bullish Candlestick Patterns

Bullish Candlestick Patterns

In the previous guide, we mentioned bearish candlestick patterns. In this post, we will present the top three bullish candlestick patterns and how you can use them in trading.

Bullish Engulfing pattern

Bullish Engulfing is a bullish reversal pattern, which occurs at the bottom of a downtrend. It is identified when a large candlestick, showing a bullish trend, follows a small candlestick, showing a bearish trend. The body of the large candlestick completely overlaps or engulfs the body of the previous candlestick.

The bullish engulfing pattern’s strength comes from the sudden rise in sentiment from a bearish to a large bullish real body candle that closes at the high. This indicates that the bears have overstayed their welcome, and the bulls have restored the market’s control.

The bullish candlestick of an engulfing pattern typically has a small upper wick, if any. This signifies that the pair closed at or near its highest price, indicating that the day ended while the price was still climbing. 

The lack of an upper wick makes it more likely that the next day will produce another bullish candlestick pattern that closes higher than the engulfing pattern closed. However, it’s also possible that after gapping up at the opening, the next day will produce a bearish candlestick. 

How to trade the bullish engulfing pattern?

To trade this kind of bullish candlestick pattern, you should look not only at the two candlesticks, which form the bullish engulfing pattern but also the following candlesticks. This larger will give you a clearer picture of whether the bullish engulfing pattern marks a true trend reversal.

You can buy near the end of the bullish engulfing candle or wait until the next candle to enter with a stop-loss near the recent low.

How to avoid fake entries in the bullish Engulfing pattern?

Engulfing patterns are most useful after a clean downward price move because they clearly show the upward momentum shift.

The engulfing pattern’s significance is weakened if the price action is choppy, even if the price is rising overall, and you may not get a clear buy signal.

When four or more bearish candlesticks precede a bullish engulfing pattern, it is more likely to signify a reversal. However, if the engulfing candle is very high, you can be left with a large stop loss.

Hammer pattern

This pattern produces a hammer-shaped candlestick, as the name implies. It resembles the letter “T.”

The hammer pattern’s lower shadow is at least twice the size of the actual body. The difference between the prices is represented by the candlestick’s body, while the shadow depicts the high and low prices for the time.

Hammer signifies a potential capitulation by sellers to form a bottom, which is followed by a price spike, indicating a possible price path reversal. This occurs all at once, with the price falling after the open then regrouping to close near the open.

How to trade the hammer pattern?

When three or more bearish candles precede a hammer, it is most powerful. A hammer candlestick pattern does not suggest a price reversal to the upside until it is verified.

Confirmation occurs when the candle that follows the hammer pattern closes above the hammer’s closing price. This confirmation candle should ideally demonstrate good buying.

During or after the confirmation candle, you can reach long positions or exit short positions. Set a stop-loss below the low of the hammer pattern’s wick if you’re taking new positions.

How to avoid fake entries in the hammer pattern?

Within two periods, a long-shadowed hammer and a powerful confirmation candle may drive the price very high. This may not be the best time to buy because the stop loss is likely to be a long way from the entry point.

Hammer candlesticks signal a possible upward price reversal. This is a confirmation signal, and you can join the trade or exit your short positions if the price would start going up after the hammer.

Morning Star pattern

A bullish reversal pattern that surfaces at the bottom of a downtrend are known as the Morning Star. A morning star emerges after a downward trend and signals the beginning of an upward rise. It’s a signal of the previous price trend reversing.

Three candlesticks make up the pattern: a large bearish candle, a small bearish or bullish candle, and a third large bullish candle.

Bears are in control, as seen by the first candles, which usually make new lows. A bearish distance down opens the second candle. Bears are clearly in charge, as shown by the opening of the second candle. Bears, on the other hand, do not drive prices any lower. The second candlestick is very small and can be bearish or bullish. 

How to trade the morning star pattern?

You need to join at the open of the next candle until the formation is complete. More cautious traders may want to wait to see if price action moves higher before joining. However, this has the disadvantage of allowing the trader to join at a much lower level, which is particularly true in fast-moving markets.

Previous levels of resistance or areas of consolidation may be used as goals. Stops should be set below the recent swing low, as this stage’s fall invalidates the reversal.

How to avoid fake entries in the morning star pattern?

Since a morning star is a visual pattern, no special calculations are needed. After three sessions, a morning star will shape or not. Other indications, such as whether the market action is approaching a support or resistance zone, will help predict whether a morning star is emerging.

Like most candlestick trends, the Morning Star should be evaluated in light of recent trends and whether there is evidence to support the trade.

Bullish Candlestick Patterns Bottom line

All of the above-mentioned bullish patterns are a reliable identifier of price movements. You need to consider the peculiarities of each pattern and then trade accordingly. To get more accuracy, you can combine technical indicators like the RSI, Stochastics, or MACD. 

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