Mastering the trading process is complex because as an advanced trader, you must learn to blend knowledge with practice. As you start using demo accounts to put your skills to work, you can gain enough trust in yourself to handle a real-world investment portfolio that requires commitment and responsible asset allocation.
Getting the knack of candlestick patterns is the first step towards becoming a successful advanced trader, even if it can get overwhelming to learn all possible arrangements. Moreover, you need to interpret charts and candlesticks to see what’s happening on the market, so in the end, learning to trade is an ongoing, never-ending process.
While some patterns are easy to spot and understand, others are rarer, so, therefore, more complex to interpret.
So, let’s analyze how these candlestick patterns work and why you should acknowledge them.
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The Abandoned Baby Pattern: Bullish vs Bearish
The abandoned baby pattern is in the form of a three-candle that can indicate a reversal in the trend, and you can usually see it at the end of completion. The bullish baby pattern consists of a big red candle, a Doji, and a big green candle that showcases a change in advanced trader sentiment, so it’s a sign of setting up your stop loss at the end of the Doji or the green candle.
It usually happens when sellers are weaker, as the market is in a downtrend. The big red candle represents a seller’s dominance, while the Doji indicates confusion, and it’s when buyers start to gain more ground. Finally, the green candle shows how buyers overpower sellers.
On the other hand, the bearish abandoned baby pattern is usually a sign of a short-term reversal when the trending price is going up, but it has hardly ever appeared on the market in the past decades. It includes a white candlestick, which means prices close higher than the opening. The Doji follows with the same opening and closing price, while the red candlestick represents an opening price close to the high of the day.
Bearish patterns appear due to negative news announcements, technical factors like overbought conditions, or a lack of buying support. On the other hand, the bullish candlestick pattern signals a powerful softening towards an uptrend.
The Bullish and Bearish Tri-Star Patterns
The tri-star pattern can also be considered as a pattern for reversal, but it’s more inclined towards support and resistance. The bullish tri-star has three Doji candles in a row, as the middle one sits at the lowest position, representing the change from a downtrend to an uptrend. This means buyers are taking control of a previous indecision due to selling pressure. The shadows of the Doji are also important as they signal temporary volatility reduction.
The shadows in the bearish tri-star don’t matter, though, because the pattern shows a tendency for a downtrend. The middle Doji in this candlestick is peaking, showing the direction of the leading trend. Market indecision and a possible loss of buying strength are preceded by a falling upward trend when sellers take the lead.
The tri-star pattern requires a thorough understanding of support and resistance. For example, catching the sign of the pattern near a strong resistance level showcases upward momentum that will most likely be followed by a downturn. On the other hand, the tri-star close to a support level means the selling pressure is slowing down while the upward reversal follows.
Managing the tri-star requires traders to find confirmation for the entry points by looking at a bearish candle after the trend. For the exit points, traders must recognize the previous support and resistance levels to target profit.
The Concealing Baby Swallow Pattern
Another rare sight on a trading chart is the concealing baby swallow pattern, one of the most complex structures that follows a potential bullish reversal. All its four candles are bearish, with the first two including long candles, while the third is completely buried in the fourth’s size.
The fourth candle has a low opening and a high closing pattern, so advanced traders should expect the end of a bearish momentum and the start of the reversal. Basically, the last candle conceals the bearish nature of the third one due to exhaustion, making it especially valuable following a prolonged downtrend.
For your trading strategy, the concealing baby swallow has the following benefits:
- It helps you enter long positions at favorable prices;
- It’s easy to identify;
- It supports confidence since it happens after a prolonged downtrend;
- It’s even more efficient when interpreted along trend lines;
- It’s useful for a broad range of asset classes;
The Upside Gap Two Crows Pattern
The final complex candlestick pattern is the upside gap of two crows, which traders use to determine a bearish reversal pattern. It usually forms during an uptrend and starts with a bullish candle. The second creates the bearish signal with an opening up and a low close, allowing the third candle to open but push lower.
The pattern showcases how bullish sentiment slows down due to the failure to take prices further after an attempt. The trend reversal comes after pattern bulls get stuck in the trade, allowing bears to take control. The pattern is even more valuable after a prolonged rally or overbought conditions because it offers the opportunity to trade a bullish continuation pattern.
Each candle is important:
- The first white or green candlestick showcases the bullish trend of a closing price;
- The second black candle is bearish and includes a closure below the opening;
- The third candle is also bearish and represents a higher opening than the previous one;
Have you encountered these candlestick patterns yet?
Candlestick patterns can be difficult to spot in a chart but even trickier to interpret alongside each other. However, some patterns are quite rare, but they shake the market when making an appearance. The four patterns explained above are also some of the most complex because they depend on previous candlesticks and specific opening and closing opportunities. If you’re not well-prepared as an advanced trader, you may mistake one bullish pattern for a bearish one, which is why casually learning them and exploring more trading charts is ideal to avoid this.
