Once you know the basics of candlestick chart, candlestick patterns that play crucial role in understanding and forecasting the price action in trading forex and options. Some of those patterns appear in an uptrend and indicate a possible trend reversal to downwards or trend continuation to up. Again some candlestick patterns are found in a down trend and they indicate possible trend reversal to upwards or trend continuation to down. In this article we will discuss about important down trend candlestick pattern.
How to trade using down trend candlestick patterns?
While looking at a candlestick chart we can spot some specific pattern model that indicate a signal to forecast the trading market. In a downtrend we can find these following candlestick patterns that help us improve our trading quality in forex and options trading.
Hammer:
The Hammer pattern is a trend reversal indicator. It is a single candlestick pattern. Visually, this candlestick looks like a hammer with a small body of any color and a long lower shadow. There is practically no upper shadow. At the same time, the lower shadow is usually twice as long as the body. It is a down trend candlestick pattern. Open an Up trade if the price fell before this.
Inverted Hammer:
The Inverted Hammer pattern is a trend reversal indicator. It is a single candlestick pattern. Visually, this candlestick looks like an inverted hammer, with a small body of any color and a long upper shadow. There is practically no lower shadow. At the same time, the upper shadow is usually more than twice as long as the real body. It is an a down trend candlestick pattern. Open an Up trade if the price fell before this.
Bullish Engulfing:
Bullish Engulfing is a double candlestick pattern where the boundaries of the body of a green candle are larger than the boundaries of the body of a red one. The green candle follows the red one and completely engulfs it. This means that the price of the asset has risen more than it has fallen before. It is a down trend candlestick pattern. As rule, this pattern gives a signal about the end of the downtrend and the beginning of the uptrend.
Piercing Pattern:
A Piercing Pattern is a double candlestick pattern where the body of a green candle starts below the body of a red candle. The green candle follows the red one, while the closing price of the green candle is in the area of the upper part of the red candle body. It is a down trend candlestick pattern. As a rule, this pattern gives a signal about the beginning of an uptrend. A Piercing Pattern works similarly to Bullish Engulfing, but it is not as strong. To confirm the signal, analyse other patterns as well.
Bullish Harami:
Bullish harami is a double candlestick pattern where a long red candle is followed by a shorter green candle. In this case, the body of the green candle does not exceed the boundaries of the red body. It is a down trend candlestick pattern. As a rule, this pattern gives a signal about the beginning of an uptrend. To determine the trend more accurately, analyze the pattern together with a support line.
Three Stars in the South:
The three Stars in the South pattern is a down trend candlestick pattern. It is a triple candlestick pattern. Each subsequent candle is shorter than the previous one. In addition, the minimum price increases from candle to candle. The Three Stars in the South pattern indicates that the downtrend is getting weaker and a bullish reversal is possible. If this pattern is formed on the chart, the price is likely to rise after the fall.
Bullish Doji Star:
The Bullish Doji Star pattern is a triple candlestick pattern. It begins with a long red candle. It is followed by the doji candle. It is located below the previous candle, and there is a small gap down between them. The third candle is also green. Its body is more than the body of the first red candle and almost covers it. The Bullish Doji Star pattern is a down trend candlestick pattern and indicates a bullish trend reversal. If this pattern is formed on the chart, the price is likely to rise after the fall.
Please note: you can enter the market by a Bullish Doji Star only if the pattern is formed on a downtrend.
Downside Gap Three Methods:
Downside Gap Three Methods is a down trend candlestick pattern. It is a triple candlestick pattern. It starts with two long red candles with a gap down between them. The third candle is green and its body covers the gap between the first two candles. If the downside Gap Three Methods pattern is formed on the chart, as a rule, the downtrend continues.
Three Inside Up:
The Three Inside Up pattern is an extended version of the Bullish Harami pattern. It is a triple candlestick pattern. In this pattern the first candle is red. It is followed by a shorter green candle, and its body does not go beyond the body of the red candle. The third candle is also green, and its closing price is higher than the previous green candle. It is a down trend candlestick pattern and as a rule, the three Inside Up pattern confirms that the trend turned around, and the price began to rise after the fall.
The Morning star:
The Morning star is a triple candlestick pattern. It begins with a long red candle. It is followed by a short candle of red or green color. It has a small body because it closed next to the price at which it was opened. The third candle is green, and its body covers most of the body of the first, long red candle. Morning star is a down trend candlestick pattern and usually indicates a bullish trend reversal. If this pattern is formed on the chart, the price is likely to rise after the fall.
Please note: the larger the body of the third green candle, the stronger the signal.
Morning Doji Star:
The Morning Doji Star consisting of three candlesticks is a down trend candlestick pattern that indicates bullish or upward reversal. It is a triple candlestick pattern. The first candlestick (red) is the final candlestick on a downtrend. The second candlestick is a star. This is a candlestick with a small body and longer shadows. It can be any color. The third candlestick is green. This candlestick indicates the end of the pattern and the start of a bullish trend. In the Morning Doji Star pattern, the second candlestick is the doji candlestick. It has no (or practically no) body, and the shadows above and below are long. The Morning Doji Star gives a stronger signal thanks to the doji. It indicates that the price is likely to reverse upward and will rise after a fall.
Three Outside Up:
The Three Outside Up pattern is a triple candlestick pattern. It is an extended version of the Bullish Engulfing pattern. In a Three Outside Up pattern the first candle is red. It is followed by a green, and its body is larger than the body of the previous candle, that is, the second candle absorbs the first. The third candle is also green. Its closing price is higher than the previous candle. It is a down trend candlestick pattern and as a rule, the Three Outside Up pattern indicates a bullish trend reversal and the beginning of price growth after the fall.
Tri-Star Bullish:
The Tri-Star Bullish pattern is the reverse version of the Tri-Star Bearish pattern. It is a triple candlestick pattern. A Tri-Star Bullish is a down trend candlestick pattern. It consists of three doji candles. The first and third candlesticks are approximately on the same level, with the second — below them. This pattern indicates a weakening of the downtrend. Most likely, the price will make a bullish reversal and begin to rise after the fall. Due to the three-candles doji, a Tri-Star Bullish gives a strong signal. If this pattern appears on the chart, you should definitely pay attention to it.
Falling Three Methods:
The Falling Three Methods is a down trend candlestick pattern and gives a signal that the downtrend will continue. Despite the name, it consists of five candlesticks, not three. The Falling Three Methods starts with a long red candlestick. It is followed by a series of three short green candlesticks that rise one after another. These three candlesticks, including their shadows, must be within the boundaries of the first red candlestick. After the series of green candlesticks, there is a large red candlestick whose closing price is below the closing price of the first red candlestick. If this pattern appears on the chart, as a rule, the downtrend is continuing.
Hopefully this article helps you to understand better. In our next article we have covered important up trend candlestick pattern. If you have not checked out basics of candlestick chart yet then go check it now. And if you are a beginner in trading, you need to follow 4 secret steps to earn profit in trading.
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