Different traders follow different techniques to trade effectively in the stock market. Some traders and investors use fundamental analysis and other use technical analysis to predict the future price movements. Yet other categories of people use News as the basis to forecast the price movements. There are also many traders who use the candle stick patterns as the basis of their decision to buy and sell the stocks. The candle stick charts come from the Japanese researchers in which the candles represent the price change during a period. The red candle represents the prices fall and the green candle represents the rise of the prices.
There are many candle stick patterns which are the characteristics of trend confirmation and trend reversals. The doji pattern is a signal for the trend reversal. It is represented by a small plus sign. It indicates that the bulls and the bears are balanced and there is a possibility of trend reversals. Thus the doji candle at the end of a trend is considered to be a trend reversal signal. If the doji signal is seen at the end of an uptrend then a trend reversal and a downfall are anticipated. If the doji is seen after a downtrend a trend reversal with rising candles is anticipated. Thus the trend reversal can be characterized by a doji signal.
Similarly, there are engulfing patterns which are also the characteristics of the trend reversals. There is two type of engulfing patterns. One is bearish engulfing and other is bullish engulfing. One is for trend reversals in an uptrend and other is a trend reversal s for the downtrend. In the bullish engulfing the red small candle is followed by the green candle which completely covers the body of red candle. In case of bearish engulfing the small green candle is followed by red candle which completely coves the body of green signals. Thus these are common patterns for trend reversals. There are also signals for trend consolidation and determine the consistency of the trend. There are candle stick patterns for both the strong trend and the weak trend.
Thus it can be seen that the candle stick patterns are very efficient in understanding the price movements. They can be used in conjunction with the other indicators to confirm the buy and sell signals and trade accordingly. The reputed advisory firms like Money Classic Research use the candle stick patterns along with other analysis tools to give accurate stock market tips.