Do you want to track the movement of securities? Then, you should think about the Candlestick chart. It is a financial chart that originated in Japan for trading rice. Now, it is used as a modern price charting. It is more appealing to some investors than the standard bar charts. It is because a bullish engulfing candle makes the pricing actions interpretation relatively effortless. 

The term candlestick is named because of its rectangular shape, and lines on either side resemble just like its wick. Each candlestick represents a day’s worth of price data about a stock. Over time, candlesticks become recognizable patterns that investors can use to make buying and selling decisions.

Reading a Single Candlestick

As mentioned earlier, each candle indicates daily stock price data through four pieces of information: the opening price, closing price, high price, and low price. The color of the central rectangle, also known as the real body, helps investors to identify increases in the opening and closing prices. When the real body is black or filled, it indicates that the closing price is less than the opening price. It occurs during the bearish market. It indicates selling pressure on the inventors. 

On the other hand, when the candlestick is white or hollow, the closing price is greater than the opening price. It happens during the bullish market and shows buying pressure. The lines on either end of the candlestick are the shadows. They show the complete range of price action of the whole day, ranging from high to low. While the upper shadows indicate the high prices, the lower shadow is for the lowest price. 

Pattern Of Bullish Signal

Over time, daily candlesticks turn into recognizable patterns with descriptive letters like Three White Soldiers, Dark Cloud Cover, Hammer, Morning Star, and Abandoned Child. The patterns that were formed over the period of one to four weeks are considered a valuable source for the future price action of the stocks. It usually follows two fundamental principles given below:

• A bullish pattern is not considered a bullish pattern if it was not formed within a downtrend. 
• Most of the bullish reversal patterns require bullish confirmation. It means that they should be followed by an upside price move that forms a long hollow candlestick and accompanies a high trading value. It is advisable to observe this confirmation within three days of the pattern. 

Patterns can be validated by other traditional technical analysis such as trend lines, momentum, oscillators, or volume indicators. They reaffirm the buying pressure. 

Some most significant patterns are:

Hammer Pattern

The Hammer Pattern indicated that the stock is at the bottom of the downtrend. In this pattern, the body of the candle is short and has a long lower shadow that indicates the sellers trading lower pricing during the session. It must be followed by a sturdy buying pressure with a higher close to ending this session. However, before moving directly to the bullish reversal, it is significant to confirm the upward trend by watching them closely for a few days. This reversal should also be validated through the rise in the trading volume. 

Bullish Engulfing Pattern

This pattern is basically a two-way reversal pattern in which the second candle engulfed the real body of the first one. It does not consider the length of the tail shadows. It is a combination of one dark candle followed by a larger hollow candle and occurs only during the downtrend. On the second day of the pattern, the price opens lower than the previous one, but buying pressure drives the price higher than the previous high, resulting in a clear win for buyers. So, enter the long position while the price increases than the high of the second engulfing candle. 

Piercing Line 

Piercing Line is relatively similar to the bullish engulfing pattern. It is a two-candle bullish reversal that occurs only during the downtrend. The first candle is long and black that is followed by a white one and opens lower than the previous close. However, the pressure to buy is causing the price to soar from the bottom to the actual body of the black candle. 

Therefore, it is advisable to use a candlestick chart like any other technical analysis tool. This way, you will be able to get extra information to make accurate trading decisions.