Trend Change Patterns

Trend Change Patterns

For a pattern of Japanese candles to be considered as a pattern of trend change there must be a clear trend previously. The direction of the trend can be determined using trendlines, moving averages or other aspects of technical analysis.

These are the main patterns of Japanese candles that can show signs of a possible trend change in Forex:

Hammer and Hanging Man

The hammer and hanging man look exactly the same, but they have totally different meanings, depending on the price action.

Both have a body (black or white), a long shadow below, and have practically no shadow above.

 





The hammer is a bullish pattern, that is, it indicates that the downward trend is possibly coming to an end, to begin a move upward.

When prices are falling, the hammers indicate that the fund is close and that prices will start to rise again. The long shadow down indicates that sellers pushed the price down, but buyers were able to withstand the pressure.

Important Tip: Just by detecting a hammer pattern on a downward trend, does not mean that you should open a purchase order directly. More confirmations are needed before a potion can be safely opened.

A good example of confirmation is to wait for a white candle to close above the opening price of the candle to the left of the hammer.

Recognition Criteria:

• The length of the shadow measures 2 to 3 times the size of the body.


• Very little or no shadow above.


• The color of the body does not matter.

The hanging man is a bearish pattern, meaning that the bullish trend is possibly encountering a strong point of resistance.

When prices are rising, forming a hanging man indicates that sellers are beginning to outperform buyers. The long shadow below indicates that sellers pushed the price down, but buyers managed to turn the trend toward the opening price.

This generally means that there are no more buyers to continue with the upward trend.

Recognition Criteria:

They are the same as for the hammer. Although color does not matter, a black candle is more 'bearish' than a white candle, that is, confirms more strongly a change in the trend.

Inverted Hammer and Shooting Star

The inverted hammer pattern and the shooting star are also identical. The only difference between them is the fact of being in a downward or upward trend.

Both Japanese candles have small bodies, with a large shadow above and a shadow almost null below.





The inverted hammer occurs when prices that have been falling suggest a possible change in trend. Its large shade from above indicates that the buyers put pressure, although the sellers managed to dampen it a little.

However in the end the closing price ended very close to the opening price. This indicates that the sellers failed to lower the price further, and that surely now is the turn of the buyers move the price up.

The shooting star is a bearish pattern that looks like an inverted hammer but occurs when prices are moving upwards. Their form indicates that prices rallied upward, but in the end they returned near the opening price.

This indicates that buyers were beaten by sellers, and that a possible change in the trend is at stake.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.