Three Basic Candlestick Formations to Improve Your Timing

The study of candlestick charts is mysterious to many. You might recognize the basic significance of the chart patterns, but not know how to spot strong and reliable reversal signals.

This article demonstrates and explains three of the strongest candlestick reversal patterns. These are the bullish or bearish abandoned baby, the bullish white soldiers and the bearish black crows, and the bullish and bearish engulfing pattern.

These simple but powerful indicators are formed as chart patterns, giving you a lot of information just with a glance. The more time you spend studying candlestick patterns, the more comfortable you are going to be. The origin of candlesticks traces back several hundred years. Candlesticks originally were developed in Japan to track rice futures. Many of the early candlestick experts were able to demonstrate an ability to anticipate market trends and reversals.

In the U.S. candlesticks were first introduced by Steve Nison, who has written several books on the topic. However, the candlestick has become popular only after the Internet made charting fast and easy. Before they were available on the Internet, charting services had to be purchased, often consisting of open/high/low/close charts (those vertical sticks for the trading range with smaller horizontal limbs for opening and closing prices). These services could be quite expensive, especially if you also paid for advice and interpretation.

With automated and free online charting services (such as StockCharts.com), you can now get candlestick charts instantly by just punching in a trading symbol. Some sites also allow you to tailor your charts by choosing the date range and adding the volume; many offer technical indicators and volume or momentum indicators as well. So no matter how much information you want to use to time entry or exit, today’s candlestick chart is accessible and easy to use.

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