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Reversal Patterns (page 2)
Evening Star Pattern
When an upward trends occurs the market will get stronger, but as it gets stronger on a long white day, gaps will begin to open on the second day. Second day trading on Forex, stays withing a small range and will close at or near what it opened at. This pattern generally indicates that confidence in the current trend has eroded. When this trend reversal is confirmed, the third day will be a black day. This pattern indicates a bullish trend and has a high rate of reliability..
- The first day is a long white day.
- The second day, gaps begin to open higher from the first day.
- The third day is a long black day and the close of market will be below the midpoint of the first white day.
Harami Pattern
At the end of an upward trend which has a long white day, a black candlestick opens that is lower than what the previous day closed at. Market trading is generally light and the day will close lower than what it opened at. This signals that the current upward trend is losing strength and this indicator is confirmed with the next trading day seeing candlesticks following the reversal trend. This pattern indicates a bullish trend, but it has a low rate of reliability..
When a long black day occurs at the ending of a downward trend, a white candlestick will open that is higher than what the previous day closed at. Prices will rise and many shorts are covered, this will encourage even more investors to buy. This pattern is usually confirmed when the next trading day's candlestick follows the reversal trend.
- A long body followed by a short body with opposite color.
- A short body is completely within the previous day's long body.
- The color of the second candle is not important.
Morning Star Doji Pattern
In a downward trend, the market will support the bearish investing trend with a long black day; gaps will begin to open on the second day of trading. The Forex market will see trades that stay within a small range and it will close at or near where it opened. This pattern generally indicates the potential for a rally since many of the positions have changed. Confirmation of this trend reversal is marked by the third day being a white day. This pattern also indicates a bullish trend and has a high rate of reliability.
- The first day is a black day which indicates the trend of the market.
- The second day must be a Doji day.
- The third day is a white day and supports the reversal of the trend.
Written by: Natali Ya