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Candlestick Pattern Cheat Sheet

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by Gavin in Blog
July 14, 2021 2 comments
candlestick pattern cheat sheet

Today, we have a special treat for you, a Candlestick Pattern Cheat Sheet.

The image is below, and you can right-click to save it as a pdf.

Contents

Introduction 

Technical charts are a two-dimensional representation of price over time.

There are various types of charts, from line charts, bar charts, and candlestick charts.

Line charts help give us an overall movement of the stock.

Bar charts are more detailed than the line chart and are suitable for demonstrating or spotting the classical price patterns.

In the next section, we will discuss the different types of candlesticks.

What are Candlesticks? 

Candlesticks charts originated in Japan and are referred to as Japanese candlestick charts. These are the most popular type of chart patterns and are very versatile.

The candle represents price movement.

candlestick cheat sheet

Each candle has a body and two wicks.

The body of a candle represents the distance between open to close, and the upper and lower wicks represent the highs and lows of a candle.

If the close price is below the open price, then the candle is red (we have used blue above to match our branding).

If the closing price is higher than the open price, then the candle is green or white.

Candlesticks charts help in adding visual clarity.

Moreover, two or more candlesticks create patterns that enable a trader to make decisions on the market’s direction.

Several continuation and reversal patterns give a strong signal and assist in making successful trades.

Candlestick Charts 

Candlestick chart patterns are the distinguishing formations created by the movement in stock prices and are the groundwork of technical analysis.

Technical Analysts and Chartists globally seek to identify chart patterns to predict the future direction of a particular stock.

Patterns can be simple as trendlines and can get even complex, like double head and shoulder formations.

Reversal Patterns

They are chart patterns that signal a trader about a change in an existing trend.

They signify periods where the bulls and bears could not drive the market in a particular direction.

Continuation Patterns

They are chart patterns that display a temporary interruption in an ongoing trend, and after a short period, the trend continues in the original direction.

Right-click the image below to download the candlestick patterns cheat sheet pdf.

candlestick patterns cheat sheet

Candlestick Patterns 

Candlestick patterns are separated into bullish and bearish patterns.

Bullish patterns indicate that prices are likely to rise whereas, bearish patterns suggest that prices are going to fall.

From the diagram above, we will study some candlestick patterns to aid you in gaining a clearer idea of how studying these patterns are helpful in the early identification of trends.

Bullish Reversal Patterns

candlestick cheat sheet pdf

The hammer candlestick pattern occurs in a prolonged downtrend.

The candle formed in this process should have a small body and a prominent lower shadow.

The color of this candle can be either green or red.

If it is green, the hammer is bullish. If the stock moves higher after the hammer, the ideal strategy would be to go long with a stop loss below the candle’s low.

candlestick pattern cheat sheet pdf

The bullish engulfing pattern can usually be found in a downtrend.

We should see a red candle, followed by a green candle.

The body of the green candle needs to engulf or be slightly bigger than the red candle.

If the price starts moving up after the next few candles, that is a clear indication that this pattern is confirmed.

The strategy would be to go long and place a stop loss below the low of both the candles.

candlestick patterns cheat sheet pdf

The bullish breakaway pattern is usually formed at the end of a bearish move.

This pattern is a trend reversal and translates into a bullish trend.

However, there is a chance that the trend might not reverse quickly, and ideally, the trader should wait till a larger green candle appears to confirm this pattern.

We follow the same strategy as before, go long once the pattern is confirmed with a stop loss from the point where the price increases.

Bearish Reversal Patterns

cheat sheet candlestick patterns

The hanging man pattern is a bearish reversal pattern and looks like a hammer candle we looked at earlier.

The only difference between the two is that the hanging man appears at the end of an ongoing uptrend.

If the color of the hanging man candlestick is red, it is a strong indication that a bearish trend is likely to start.

Once a trader confirms this pattern, they should take a short position and set a stop loss above the high of the candle.

candlestick chart cheat sheet

The bearish engulfing pattern is found in an uptrend. We should see a green candle which is followed by a red candle.

The body of the red candle needs to engulf or be slightly bigger than the green candle.

If the price starts moving down after the next few candles, that is a clear indication that this pattern is confirmed.

The strategy, in this case, would be to short the security once a trader has confirmed the pattern and place a stop loss above the two candlesticks.

The bearish reversal pattern is like a mirror image of the bullish reversal pattern.

candlestick pattern cheat sheet

The bearish breakaway pattern is typically formed at the end of a strong bull rally.

This pattern is a trend reversal and migrates into a bearish trend.

Just like we saw in the bullish breakaway, there is a chance that even in this pattern, the trend might not reverse rapidly.

Preferably the trader should use other indicators to confirm the trend reversal.

Conclusion 

Technical analysis is a widely used tool to attempt to predict stock price movement. It aids in taking advantage of the price discrepancies with the support of various indicators and patterns.

Some candlesticks that we studied above help give a trader an edge by early identification of an uptrend or downtrend.

There are many similarities, and at times some patterns can get confusing.

Therefore, it is advised that before directly making use of the candlestick patterns, traders should go through all the patterns and try to understand them virtually.

Doing so will drastically increase confidence and enable any trader to make accurate financial decisions when applying these concepts.

Perhaps even print out the candlestick pattern cheat sheet and have it on your trading desk.

Trade safe!

Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.

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2 Comments
  1. ALex says:

    Thank you, Gav!
    More about Chart Patterns:
    http://thepatternsite.com/visualcpindex.html

  2. Anonymous says:

    Thank you Gav, your articles are always short, concise, and useful.

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