Bullish Candlestick Patterns: Essential Signals for Traders

Trading and investing is a vast field of knowledge, growth, and learning, and since their conception, this art has come a long way and has undergone various transformations. The latest transformation is based on technological advancement and is the most drastic yet. With the advent of computational algorithms, high-speed devices, and the rapid spread of knowledge, trading and investing has attracted people from all parts of the world and has become a sensation. It is comparatively easier to get started in the field today and even easier to understand the trading concepts and their implementation in the real world. One of the biggest achievements of this transformation is the advancement in technical analysis of assets over a period of time. 

Technical analysis is a trading method used to analyse historical price data and volume bought and sold over a certain period to positively predict the market and future price movements. This analysis is done using various tools, and among these tools are chart patterns that visualise the increase and decrease in price over time. While referencing these charts and the patterns, two animals, bulls and bears, are highly talked about but not as you may think. These two animals represent the buyers and the sellers, respectively, and much of the trading world terminology is also based on them. 

As the name suggests, the buyers buy the assets, which causes the price of the asset to increase, whereas the sellers sell the assets, which causes the price to decrease. Among a few other factors, the asset price depends on buying and selling, and this is exactly what the charting patterns visualise. If the buyers are in control and the price is moving upwards, the chart pattern is said to be bullish, whereas if the sellers are in control, the price moves downward, and the chart pattern is regarded as bearish. Keeping this in mind, there are many different types of bullish and bearish charting patterns that traders can use to make profits. 

Both these patterns are also highly regarded in speculative trading via CFDs, where the traders can trade assets without owning them. Additionally, these patterns have quite a few properties that a trader must be familiar with before utilising their power. For beginners who want to excel in the trading world and use all kinds of technical analysis tools, we recommend first getting familiar with them and their performance on a demo account that is available to operate on most trading platforms. In this article, we will talk in-depth about bullish candlestick patterns, their different types, and how to use them in CFD trading. 

What Is a Candlestick Graph?

A candlestick graph, more commonly known as a candlestick chart, is a form of technical analysis that visualises the price movements of an asset over a certain period of time. This tool is offered on almost all trading platforms because of its popularity, ease of use, and unmatched importance in the analysis.  The basic metrics that a candlestick chart or graph displays include:

• The opening and closing price of the asset
• The highest highs and the lowest lows of the asset price 
• The price fluctuation of the asset in a day, week, month, 5 months, and a year. Some charts may offer options to even view the fluctuation over a period of 10 years or give you an option to put in your desired period.

Charts have truly become a cornerstone of technical analysis in trading, and understanding them deeply is a mark of a good tradesman. However, this tool has come a long way since its conception in the 18th century. It is believed that the concept of charting prices, deducing market sentiment, and making future predictions from the chart first started in Japan, where Japanese rice traders would deduce rice prices based on the asset’s current market price, which, in this case, was rice. Now, the charts have become more sophisticated and statistics-based than before. 

These charts are used to identify market trends, potential price movements over a given period, and, most importantly, patterns. Charting patterns are shapes that are made when certain price movements are made. These shapes can be recognised, and the associated prophecy may come true. Traders thus use these patterns to look for potential entry and exit points in a trade to predict price movements and trend reversals. 

Candlesticks act as units of information in a chart, and their shape is of utmost importance. Each candlestick has two main components: a body and a shadow (upper and lower). The body represents the opening and closing price of the asset in a given period of time and is mostly shaped like a rectangle. The shadow is the line that goes straight through the body and can be seen above and below the body, mostly in varying lengths. They are mostly referred to as the upper shadow and the lower shadow, representing the highest highs of the asset price and the lowest lows of the asset price over a given period of time. 

These candlesticks make up a chart pattern, and based on the asset prices, their movements, and more, these candlesticks and chart patterns can be bullish or bearish in nature. A bullish candlestick or chart pattern is mostly coloured in green, whereas a bearish chart pattern or a candle is mostly coloured red. 

Bullish vs Bearish Candles

The trading world is based on these two types of candlesticks; understanding them is paramount for any trader. Here, we explain the two candles in detail and examine their similarities and differences. 

Bullish Candles 

Bullish candles are the candles that form when the closing price is higher than the opening price. A simple way to look at it is that in a tug-of-war between the buyers and the sellers, the buyers have dominated the field and have taken the asset price up. The colour of such a candle is green or white in most cases. The candle also indicates a strong demand for the asset in the market; thus, buying pressure is on the buyers. If consequent green or bullish candles are seen, a potential trend continuation is imminent and can be very favourable for the buyers. 

Bearish Candles

Bearish candles are the candles that form when the closing price is lower than the opening price. Here, the sellers, the bears, have taken control of the market and brought asset prices down. Such a candle shows a selling pressure in the market, and this type of candle is mostly coloured red or black, which is indicative of a downward trend. If consequent red or bearish candles are seen, a potential trend continuation is imminent and can be very favourable for the sellers. 

Key Bullish Candlestick Patterns

Bullish candlesticks and patterns indicate a potential uptrend in the market, which the traders can use to make considerable profits. As explained earlier, these patterns indicate that the buyers have gained the upper hand and the asset’s price is projecting an upward trend. There is also a possibility that after concurrent bullish candles, the trend may continue upward. There are various ways that their bullish candles can come into being, and based on their shapes, traders can predict the market. A few of the most famous bullish candlestick patterns include Hammer, Morning Star, and Engulfing patterns.

Hammer Bullish Candlestick Pattern

A hammer bullish candlestick pattern is a single candle pattern that typically appears at the bottom of a downtrend. This means a potential trend reversal is imminent, from bearish to bullish. This type of pattern can be recognised by a smaller body, a long lower wick, and a very short or no upper body, which looks like a hammer. This type of pattern can be effectively confirmed by looking at the immediate next candle. If the next candle is green, the trend can be positively confirmed as moving into an uptrend.  

Morning Star Bullish Candlestick Pattern

A morning star bullish candlestick pattern is a candlestick pattern that looks like the morning star. This pattern shows a change from a bearish trend to a bullish trend. The first candlestick is bearish, showing a selling pressure on the seller. The next candlestick shows a state of indecision in the market where the sellers and the buyers are in an equilibrium with each other. Lastly, the third candle is strong and bullish, showing that the buyers have taken over after the indecision. 

Engulfing Bullish Candlestick Pattern 

This pattern has two candlesticks: one is a bearish candle, and the other is a strong bullish one. As the name suggests, the bullish candle is so strong that it completely engulfs the bearish candle. This pattern shows that the buyers took over the market quite drastically and will increase the asset price. 

These are all examples of bullish candlestick patterns. One important thing to note is that these patterns are only hints, and we need additional information and technical analysis to confirm them. 

Weak Candlestick Patterns

We have seen the bullish candlesticks above, which should be confirmed using different factors. After confirmation, the pattern will certainly go in the expected direction. However, a few different patterns are known as weak candlestick patterns because, even after confirmation, they may not go in the expected direction. 

Doji Candlestick Pattern 

A doji candlestick pattern shows a state of indecision in the market. It is recognised by a small body with long shadows on each side. This type of candlestick can be confirmed with immediate candles, but not 100 per cent. Because this pattern shows indecision, buyers and sellers have an equal opportunity to take control. 

Inverted Hammer Candlestick Pattern 

An inverted hammer candlestick pattern is similar to the bullish hammer candlestick pattern but in an inverted way. It appears after a downtrend and is weakly confirmed because it has the tendency to reverse quickly. Generally, this pattern is considered bullish in nature but needs consequent confirmation every step of the way. 

The charting patterns are very dynamic and can change in a small amount of time. Understanding these patterns and the logic behind their development is thus very important and takes time. 

How to Read Candle Bar Charts

As explained, a candle bar chart offers information on four main components of an asset price: its opening price, closing price, its highest price, and the lowest price. These four components are enough to understand the state of the asset in terms of its price movements, market sentiment, and trend. To read and understand the candle bar charts, it is important to understand the historical data on the asset. 

You can simply look at the price chart and, at that one glance, pick up a green or a red sentiment in the market, but what if you want more information? Ask yourself how the asset reached this position, what world factors affected its price movements, and how the market reacts to the changes. These are just a few questions you should ask yourself when understanding the chart patterns in detail.

Each trading platform that offers charting patterns offers various metrics that can be applied to the charts. For example, a time frame of a minute, a few minutes, hours, days, weeks, months, and sometimes years, volume data that is the number of trades in a given amount of time, and more. The traders can refine their search and interpret the chart using these additional metrics. Generally speaking, three interpretations can be made: either the trend is in an upward direction, a downward direction, or a consolidation phase. Understanding these phases, how they develop, and what might come next is all there is to successfully read price charts and their patterns. 

Using Bullish Patterns in CFD Trading

CFD trading or contract for difference is a technique in trading that allows traders to speculate and possibly make a profit on price speculation of the assets without actually owning the asset. This gives traders exposure to a broader market and a number of asset classes that might not have been possible for them to gain access to. In such trading, traders heavily rely on bullish patterns as they are the basis of speculative trading. 

Bullish and bearish patterns help traders understand the current market, the reasons behind price movements, and market sentiments. Based on this, they can anticipate changes in the market, identify potential entry and exit points, and potentially make profits. However, CFD trading is best suited for experienced traders who understand the markets deeply and have the expertise to speculate trends based on technical analysis. 

FAQs About Candlestick Patterns

What is a bullish candlestick? 

Bullish candlesticks and patterns indicate a potential uptrend in the market, which the traders can use to make considerable profits. These patterns indicate that the buyers have gained the upper hand and the asset’s price is projecting an upward trend. A few of the most famous bullish candlestick patterns include Hammer, Morning Star, and Engulfing patterns.

How do candlesticks reflect market trends?

Candlesticks reflect market trends by visualising the price movements of the assets. If the prices are going up, the market is seen to be optimistic, where the buyers are in control and if the prices are going down, the market is seen to be pessimistic, where the sellers are in control. 

Bullish and bearish candles are two types of candlestick patterns that traders use to understand and predict market trends and price movements. These candles are a part of charting patterns that can be very informative for traders when used in conjunction with other technical analysis tools. The bullish candlesticks and patterns indicate a potential uptrend in the market, which the traders can use to make considerable profits. These patterns indicate that the buyers have gained the upper hand and the asset’s price is projecting an upward trend. A few of the most famous bullish candlestick patterns include Hammer, Morning Star, and Engulfing patterns.

The charting patterns are very dynamic and can change in a small amount of time. Understanding these patterns and the logic behind their development is thus very important and takes time. If you are a beginner trader, we recommend practising with these patterns on a demo account first. This will help you experience these patterns in mimicked conditions based on real-world events. Bullish candlestick patterns are thus one of the most important patterns to use and understand in the trading world.