How To Use Candlestick To Identified Short/Sell Signal Forex Market.

This article is a continuation of last week’s article. Last week, if you can grab a copy of that article, we discussed long or buy formations. This week, the focus is the opposite of that. We shall also summarise five candlestick bearish patterns and their characteristics for a sell decision or to go short.

Hanging man

The hanging man has or is characterised by a small real body, long lower shadow and short or non-existent upper shadow. The length of the lower shadow must be at least twice that of the real body.

The hanging man is a bearish reversal pattern that can also mark a top or resistance level. Forming after an advance, a hanging man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raises the yellow flag.

As with the hammer, a hanging man requires bearish confirmation before an action. Such confirmation can come as a gap down or long black candlestick on heavy volume.

Shooting star

The shooting star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A shooting star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should relatively be long and at least two times the length of the body. Bearish confirmation is required after the shooting star and can take the form of a gap down or long black candlestick on heavy volume.

 Bearish engulfing

  

This requires an existing or previous uptrend or ascension. The last candle before the engulfing candle must be bullish. The engulfing candle must be bearish and must ‘swallow’ the previous bullish candle in a manner that the previous candle can completely fit into it. A bearish confirmation may be required. The formation of the pattern on a higher time frame will give more potent result.

Bearish piercing

This requires an existing or previous uptrend or ascension. The last candle before the piercing candle must be bullish. The piercing candle must shoot/pierce/cover the over or at least 50 per cent of the previous candle. The piercing candle must be bearish. The piercing candle must open higher than the close of the previous candle, then close below the midpoint of the body of it. A bearish confirmation may be required. The formation of this pattern on a higher time frame will give more potent result.

 Dark cloud cover

This requires an existing or previous uptrend or ascension. The last candle before the dark cloud candle must be bullish. The next candle opens at a new high then closes below the midpoint of the body of the previous bullish candle. The formation of this pattern on a higher time frame will give more potent result.

A combination of last week and this week summary on candlestick formation could narrow your search on winning or profitable candlestick formation strategy as you now have nine strategic formations to look out for on your trading style, time frame or periodicity.