Candlestick patterns can be used to identify when to buy a share as was covered in Candlestick patterns for professional traders. They can also be used when tracking your shares to identify possible points to sell the share at. The following candlestick patterns are common patterns that can be used to identify when to sell your shares and are often classed as smart exit strategies.
The shooting star has a small body with a long upper shadow at least two to three times longer than the main body. The colour of the pattern can be either red or green and the candle can be open or solid. The shooting star is one of the most common candlestick patterns that are found in the market and very reliable. The shooting star indicates that a share is likely to go down when seen after a strong rise in the share price.
The shooting star shows that the share price rose strongly early in the day to reach a new high level. At the top of the shadow the profit takers stepped in to sell the share back down, near to where it opened. This wave of selling has stalled the up trend and it is now time to consider selling.
Hanging Man
The hanging man looks the same as a hammer. The difference between the two patterns is dependent on their location. A hammer is found after a share price has been falling while a hanging man is seen after a share price has been rising. The hanging man consists of a small body with a long lower shadow which must be at least two to three times the length of the main body for the pattern to be considered legitimate.
The candle can be red or green, open or solid. The Hanging Man shows that there has been a large sell off of shares during the day and this may have exhausted the up trend. If the next day’s opening price is less than the Hanging Man day’s close, prices will usually fall. If the next day’s price opens even, or above, then prices will usually crab sideways.
Doji
The doji (pronounced doe -gee) is formed when the opening and closing price for the day are the same. The share price moved higher and/or lower during the day however the closing price was the same as the opening price. The colour of the doji can be either red or green. The doji is a reversal pattern, which signals a balance between supply and demand. Buyers cannot push the share higher and sellers cannot push the share lower indicating balance.
A reversal will occur if the sellers take over from the buyers after a strong up trend. Doji patterns appear many times and it is important to confirm the change in trend before acting on this pattern. If there are many doji present it signals the price is in balance and will crab sideways.
Bearish Doji Star
The bearish doji star is a combination of two candles. The first candle is open and green, the second candle gaps or jumps higher the next morning and the forms a doji. The interest in the share has been so strong that the share gapped higher at opening time however could not push higher during the day. This is a stronger signal than the doji on its own and is sometimes called an evening star. It is likely that the share price will drop after this signal.
Doji
The doji (pronounced doe -gee) is formed when the opening and closing price for the day are the same. The share price moved higher and/or lower during the day however the closing price was the same as the opening price. The colour of the doji can be either red or green. The doji is a reversal pattern, which signals a balance between supply and demand. Buyers cannot push the share higher and sellers cannot push the share lower indicating balance.
A reversal will occur if the sellers take over from the buyers after a strong up trend. Doji patterns appear many times and it is important to confirm the change in trend before acting on this pattern. If there are many doji present it signals the price is in balance and will crab sideways.
Bearish Doji Star
The bearish doji star is a combination of two candles. The first candle is open and green, the second candle gaps or jumps higher the next morning and the forms a doji. The interest in the share has been so strong that the share gapped higher at opening time however could not push higher during the day. This is a stronger signal than the doji on its own and is sometimes called an evening star. It is likely that the share price will drop after this signal.