Reversal Candlestick patterns
Analysis:
The main focus of this section are candlestick patterns which show some kind of rejection of price. This is usually indicated by a small body and a long wick. There a various names given to these types of candles however, these are not important and you should not get hung up on what constitutes "hammers" "shooting stars" "gravestones" or "dragonfly's". What is important to understand is that these candles are formed when either the buyers or sellers have unsuccessfully pushed price in a particular direction, only for it to reverse in the opposite direction.
For example, if price is in an uptrend we might start to see volume taper off and volatility start to decline. Price is no longer inputting large bullish candles but is instead showing signs that the upwards momentum is beginning to slow down. At this point the buyers might try to hold on by pushing price higher. This initiates a strong push to the upside. However, sellers might have noticed the slowing momentum and there is therefore, a large increase in sell orders alongside other market participants who might now be looking to take profits from the previous move up (in order to profit from a long position you must "sell"). All of these sell positions immediately push price back down creating a large wick in a specific frequency candle (i.e. 1 hour candle).
These candlestick formations should be coupled with further confirmation for more accurate analysis before being implemented into any trading strategies. For example, a bullish reversal candlestick should await confirmation from a bullish engulfing candle before a trade is taken.
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