General rules
- Generally, a bullish reversal pattern MUST occur in an downtrend; and a bearish reversal pattern MUST occur in a uptrend.
- Reliability: A strong rating means confirmation is not not usually required, while a moderate and weak rating means a confirmation is required in varying degrees.
- The occurrence of a reversal pattern does not necessarily mean a reversal of the trend. It could also mean a sideways movement.
- A reversal pattern may occur in succession prior to confirmation. This means that the probability of a reversal is increasing.
- These patterns are only signals. It is not accurate 100% of the time.
japanese candlestick REVERSAL patterns
ADVANCED BLOCK
Reliability: Strong A variation of the 3 white soldiers pattern wherein last 2 candles displays a weakening drive. The weakness is indicated by long upper shadows and/or progressively smaller bodies. This represents exhaustive buying force or increase in selling pressure. |
PIERCING PATTERN / DARK CLOUD COVER
Reliability: Strong A bearish reversal signal. A long hollow candle is followed by a solid candle that gaps above the closing of the former and closes within the real body of hollow candle. The deeper the penetration, the stronger the reversal signal. 50% is ideal. The opposite is called a Piercing pattern. |
ENGULFING PATTERNS
Reliability: Strong An engulfing pattern is composed of a solid or hollow candle that is engulfed by a candle of the opposite color. The opening of the the second candle must gap from the closing of the prior candle and closes well above/below it. The engulfing of the real body bears more weight. |
MAT-HOLD
Reliability: Strong A five candlestick pattern in which the long candle is followed by three small-bodied candlesticks of the opposite color, the first of which must gap from the first candlestick. The fifth candle, which closes above the second candlestick, is the confirmation of the prevailing trend. Ideally, 3 small-bodied candlesticks are required, but variations range from 2-4 candlesticks. |
MORNING AND EVENING STAR
Reliability: Strong A three candlestick pattern in which the second candlestick (the start) gaps above of below the first. The third candlestick moves in the opposite direction of the prevailing trend and closes well within the body of the first candlestick. The color of the star is not important. |