The formation of Chart patterns while analysing the stock market or individual stocks can tell you the current trend and possible movement. Though a line chart can show you only the trend of movement in price, candlestick chart patterns can give a clearer picture.
The series of Candlestick chart patterns provides more insights for traders while analyzing the stock technically. You can combine multiple candles and apply other indicators to know the trend, and next move of the underlying asset, and based on that can make buying or selling decisions.
Apart from short-term trading decisions, candlestick chart patterns are very useful for intraday trading or day trading decisions. There are multiple candles but few of them are more effective while analysing from an intraday trading perspective. Hence, we are going to discuss about the candlestick charts that are best for day trading and candles for option trading.
What do Candlestick Patterns Mean?
Maybe you are aware of the candlestick charts and their different patterns, but still, we need to revise what exactly the candlestick charts are. The candlestick charts are the formation or shape of price movement of the market index or individual stock for a selected period (hours, a day, week or month) in red or green colour candles with tails (wicks) or no tails.
The green candle means the price of the underlying security closed above the open price, while the green candle represents the close price below the open price. The tails on the upper and lower sides also called wicks show the highs and lows in the price movement. Sometimes the candle is formed in a rectangular shape and there are no wicks.
How Many Types of Candlestick Patterns are there?
As per the market experts, there are around 42 different types of candlestick chart patterns that are recognized. However, However, as per Author Thomas Bulkowski who analyse these candles more deeply, found there are 103 types of candlestick formations.
Understanding and analyzing all types of candlestick charts is not possible for everyone including investors or traders. Even traders use only a few selected and effective candlestick charts that can give true signals for day trading. So, we will discuss here only the best candlestick patterns that are suitable for intraday trading or day trading.
Best Candlestick Patterns for Day Trading
Hammer Candlesticks Pattern
The pattern can be picturised from the name itself, a pattern is said to have formed when a candlestick has a short body with a long wick on the lower side that looks like a hammer. When such pattern is formed at the end of a downward trend or during the end of a pullback, it would reflect a potential trend reversal or continuation and an area of strong buying.
Compared to a red candle if the body of the hammer is green, a strong bull market. Similarly, an inverse hammer candle is formed with a short body and a long upper wick.This candle also formed at the bottom of the downward trend giving the buying signal. You can use the hammers for day trading with a strong buying signal if there is significant volume.
Engulfing Candlestick Patterns
An engulfing patter is said to have formed when the previous candle body is overshadowed by the next candle body. Suppose the previous candle closed in red with a small body, and the next candle closed in green with a long body shape, entirely engulfing the previous candle. Then it is a bullish engulfing pattern.
For bearish engulfing candle, the previous candle closed in green with a small body, and the next candle closed in red with a long body shape, entirely engulfing the previous candle.
Morning and Evening Star
The morning starts candlestick chart patterns are formed at the bottom of a downtrend, in which the first candle is like the morning star a bearish candle that indicates the downtrend. The second candle is a small one liking like doji, and the third one is a large bullish candle that ends at the top of the day.
These three candle formations show, that there is a bearish trend but bulls taking control and there is a trend reversal giving the trading opportunity for the traders to enter into long position for the day or intraday. You can wait for the next green candle for the validation, but for intraday, there is not enough room to book large profits, except for small margins.
Hanging man for Day Trading
A hanging man can drop anytime if anything happens unfavourable. Similarly, the hanging man candlestick chart pattern has a short body with a long lower wick. This candlestick is formed at the top of the uptrend showing bears have taken the market into their grip and further, there could be selling reassure giving the signal of a bearish trend.
You can use the hangman for intraday trading with a short-selling strategy to book the profits when the market further goes down. Day traders can also use this candle to book the profits in the long positions and exit before the market turns down into a bearish trend.
