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.
