Forex traders study price charts to identify patterns. These tell them if the market is going to be bullish or bearish soon, so they can make correct decisions and cash in. Buyers use bullish candlesticks to identify the best entry points. This knowledge is a fundamental part of technical analysis for stock traders, but it is also useful for forex trading in South Africa.
Basic Logic Behind Candlesticks
Different trading systems use different colors for candlesticks. A bullish candle may be either white or green. It appears when bulls, or buyers, try to drive prices upwards. What forms is a candle whose close is always higher than its opening. Trading is a constant battle between bears and bulls. Massive selling, or bearish behavior, drives the prices downward; long positions have the opposite effect.
To calculate the next move, you need to know which group has the upper hand at the moment. When bulls dominate, shorting the stock is a bad idea. When sellers prevail, you should refrain from buying.
Overall, candlestick patterns help you make the right decisions and be in the black. They are usually used together with volume indicators like RSI, trend lines, momentum, or oscillators to ensure additional confirmation. Bullish candlesticks indicate a significant presence of buyers, and the price for the asset is on the rise. You can see these patterns on any chart. Learn how to read them.
Candlesticks for Trading
A bullish pattern informs you that bulls are starting to prevail. Each candlestick reflects price activity over a single trading day. Its key elements are the opening price, closing, the high and low of the day. You can deduce that the opening price is higher if the color is white or green. The time frame may range from one-minute to monthly. Here are a few examples of the bullish candlestick in South Africa, according to ForexTime.
1. The Hammer
This pattern is called this way because of the way it looks: it comprises a small body and a long lower shadow. You can see it near the top of the trading range for the day. The Hammer indicates that a downtrend is about to reverse. Its opposite — the inverted hammer — is another bullish signal. It comprises a long upper shadow on top of a small body.
This pattern is called this way because one of the candles engulfs the preceding one. Bulls look for the sequence where a large white/green candle comes after a smaller black/redone. The length of the shadows is irrelevant. In a downtrend, this shows that the buying pressure is mounting, and a reversal is coming.
3. The Morning Star
Here, you will see three candles instead of two. A red/black candlestick is followed by a shorter one that usually will go down to form a star-like pattern. The third candle is white/green, and it closes within the body of the first session. This shows that a bottom reversal has started.
4. Three White Soldiers
It is another 3-candlestick pattern. It looks like a staircase. Three rising candlesticks in a row may be either ordinary or long. Each day, the opening price is under the previous close, and the prices progressively close higher. This pattern requires caution because candles may be too long to attract sellers, so the price is pushed further down.
Always Look for Confirmation
Bullish candlesticks are telling, but still, they should not be used on their own. An experienced trader knows that confirmation is key. Thus, make use of other indicators to support your assumptions.
- Bullish candlesticks show increasing by pressure in the market, which means reversal should be expected.
- Bullish reversal patterns always form in a downtrend.
- On their own, these patterns do not guarantee that bulls will take over. They must be used in combination with other indicators.
- Wait for confirmation from price action before initiating a trade. Any bullish pattern must be followed by a gap up or a long hollow candlestick, and trading volume must be high.
- Open a long position when the price breaks above the high of the white/green candlestick.