Introduction to Bullish Candlestick Patterns: Implications and Price Movement Prediction

Technical analysis is an integral part of trading, and today we’ll explain a few Bullish Candlestick Patterns that experienced traders employ to indicate a potential movement of stock price and thus earn abnormal returns. 

If you wish to expand your knowledge on Bearish Candlesticks Patterns, then click here to read our blog.

Overview

Candlesticks are the pictorial representation of stock price movement over a specific period of time. The period can be daily, weekly, half-yearly, etc. The candles are formed by a stock’s open, high, low, and closing price. They are often shown by different colors, such as – a green or white candle stands for upside movement in the stock while a red or black candle represents the downward movement.

A candle has three parts:

1. The body represents the stock’s open and closing prices.

2. The wick displays the stock’s intraday high or low.

3. The color of the candlesticks indicates the direction of the stock’s price movement.

Bullish Candlestick Patterns

This pattern indicates that the stock price will rebound and trend upward following a stock price correction. Traders typically utilize the candlestick pattern to enter a stock after it has shown an upward trend.

A few typical bullish candlestick patterns are listed below.

Bullish Engulfing Pattern

This candlestick pattern indicates a turnaround and the conclusion of a downward trend. It manifests as two candles, the larger of which is a bullish candle that swallows the earlier bearish candle. It shows the change in momentum from negative to positive. Traders will interpret this as an indication to go long in stock. It is named “engulfing” because the body of the bullish candlestick “engulfs” the entire body of the previous bearish candlestick.

This pattern is more likely to occur when a stock price has had a substantial decline and the stock is finding support close to its critical levels. Additionally, a higher volume suggests buyers are becoming interested in the stock.

Hammer Candlestick Pattern

It is formed like a hammer, as the name implies. This single candlestick pattern appears when a stock hits its support level at the bottom of a downtrend. Hammer candles have long wicks and small upper bodies because the wick in the lower portion is significantly longer than the candle body in the upper half.

Traders typically interpret this as the end of selling pressure, at which point purchasers attempt to regain control of the buying interest. 

The widespread consensus is that the stronger the bullish indication, the longer the lower wick of the candle.

Morning Star Candlestick Pattern

This bullish pattern with three candles usually appears at the bottom of a downtrend. The first candle in this pattern will be a long bearish candle, signifying that sellers are in complete control of the stock; the second candle will be a little body candle, suggesting that selling pressure may be waning. The long bullish candle that closes above the first candle’s midpoint will be the final or third candle. This suggests that buyers are attempting to control the stock price movement fully.

The strength of the pattern increases with the size of the second little body candle. When it follows a protracted downward trend, this pattern is more dependable.

Piercing Pattern

The pattern has two candlesticks and is bullish. The first candle in this pattern is bearish, while the second candle reverses course and closes close enough within the body of the previous day’s bearish candle. The second candle opens lower than the previous day’s close, or it opens with a gap down and trades lower during the session. The candle, on the second day, ought to close halfway up to the bearish candle’s body.

The bullish pattern’s strength increases with the bullish candle’s size relative to the preceding bearish candle.

Three White Soldier

Three consecutive white or green candles make up this bullish reversal candlestick pattern. It typically occurs near the conclusion of a downward trend and indicates a possible uptrend. Every one of the three white candles opens higher than the body of the candle from the day before and closes at a higher price. No upper shadow on any of the three candles should indicate constant purchasing pressure. Each candle in the pattern should have a body larger than the one before, signifying a purchasing indication. Buyers are believed to be aggressively gathering momentum in the stock through this pattern.

Bullish Harami Pattern

It is a signal that could indicate an upward trend reversal in the stock. It is a two-candlestick pattern that appears while the market is declining. The first candle in this pattern is a big bearish candle that suggests there is selling pressure on the stock, and the second candle is a tiny bullish candle that is entirely surrounded by the first candle’s body. The second candle begins lower than the previous day’s close and ends higher than that day’s opening. Although the second candle is bullish, it is smaller than the bearish candle that came before it, indicating insufficient positive momentum to reverse the downward trend completely.

Tweezer Bottom

The tweezer bottom pattern indicates that bulls are attempting to take complete control of the stock as selling pressure is likely to release. This pattern is often regarded as stronger when the stock is close to its support and is thought to be more dependable when it emerges following a prolonged downturn. The first candle in this pattern is bearish, which usually has a lengthy lower shadow. The second candle’s body should be larger than the first, and its bottom should be close to the first candle’s low. The pattern of these two candlesticks is similar to a pair of tweezers.

Conclusion

We’ve gone over the most common bullish candlestick patterns, but a trader must perform their due diligence before investing in stocks. It is also essential to remember that even with bullish candlestick patterns, it is advisable to use all other types of candlestick patterns to assess the larger market, as these can occasionally be false signals. 

Frequently Asked Questions (FAQs)

Q1. To what extent are bullish candlestick patterns dependable? 

Ans.  Although bullish candlestick patterns can offer insightful information about the possible direction of stock movement, they should be utilized with additional indicators and tools for technical analysis to ensure accuracy. Since no single signal or pattern is perfect, it is essential to consider a range of factors before making trading decisions. 

Q2. Which is the best bullish candlestick pattern?

Ans. Since each bullish candlestick pattern has advantages and disadvantages, controlling your risk when trading is always advisable.

Q3. What does the red candle signify?

Ans. A red candle indicates that the stock is likely to be in a downward trend and close lower than the previous day.

Q4. What do you mean by the wick of a candle?
Ans. The wick of a candle refers to the thin lines that extend from the body of the candle, reflecting the highest and the lowest price that stock hits on a particular day. These are also called the “Shadow” of a candle.

Q5. Do all bullish candlestick patterns have a long wick or shadow?
Ans. No, all bullish candlestick patterns do not have long wicks or shadows; only some candlestick patterns, like a hammer, etc, have shadows.

Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.