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Risk warning: Trading is risky. Your capital is at risk. Exinity Limited is regulated by FSC (Mauritius).

Using bullish candlesticks for trading

Bullish candlesticks are one of 2 different types of candlesticks that you can use to timely and strategically buy stocks or other financial instruments in the market. Would you like to learn more about how to use bullish candlestick in your technical analysis? In this article, we’ll cover the basics of using these patterns for trading, as well as provide additional resources to help you make potentially profitable buying and selling decisions.

Bullish candlesticks are an important part of the foundation of all stock charts. If you have further questions regarding a bullish candlestick actually is, you can return to one of our earlier helpful articles before moving forward. But just to reiterate what we’ve previously covered: a bullish candlestick forms when traders (also called bulls) try to push prices up. As a result, the close of the candle is higher than its opening price. They are typically either green or white on the price chart.

The stock market is a battle between traders who are raising the price (bulls) by opening long positions or lowering the price (bears) by selling their assets. To navigate the dynamics of the market, you need to know who has the upper hand at the time that you are trading to make smarter trading decisions. You wouldn’t want to short a stock when it's bullish, and knowing the difference can have serious consequences for your portfolio.

Put simply, bullish candlesticks make you aware of buyers. The more buyers there are, the higher the price of the traded asset is. Bullish candle patterns are on every chart you use. As a result, knowing how to read them is incredibly important.

Bullish stock patterns tell you when a stock is in a bullish trend. In technical analysis, bullish candlesticks are the first line of defense.

Traders use bullish candle patterns to identify trend reversals and form an important part of their technical analysis strategies. Using these patterns for trading is most commonly done as a part of a FX strategy, as they can provide quick indications of where the market price might move — which is vital in volatile markets.

Candlesticks for Trading

Bullish candlesticks are just one part of a technical analysis strategy. They are usually used alongside volume indicators – such as the RSI – that can show the strength of a trend.

A bullish candle pattern informs traders that the market is about to enter an uptrend after a previous decrease in prices. This reversal pattern is a signal that bulls are taking over the market and could even push the prices up further – marking the time to open a long position.

How to read bullish chart patterns?

Each daily bullish candlestick demonstrates one day's worth of price data and consists of the opening price, the closing price, the high and low of the day. The color of the candlestick body shows whether the opening or closing price is higher. The same formula applies to each time frame chart you're viewing. Traders can use candlestick charts from 1-minute candles all the way to monthly candles.

Bullish candle patterns can further be confirmed through other means of technical analysis — such as trend lines, momentum, oscillators, or volume indicators — to confirm buying pressure. There are many bullish candlestick patterns that indicate an opportunity to buy, but there are several bullish stock patterns that give a stronger reversal signal.

Bullish Chart Patterns?

The Bullish Hammer

The Bullish Hammer is one of the most popular patterns. It is observed at the bottom of a trend or during a downtrend. The meaning of the name is derived from the candle ‘hammering’ out of a bottom. This is a single candlestick pattern with a long lower shadow and a small body at or very near the top of its daily trading range.

Bullish Hammer

The Bullish Engulfing

The Bullish Engulfing is a two-candle pattern. One of the candles has a large white body that engulfs the preceding smaller black body. This pattern is usually observed during a downtrend. It is not imperative for the white body to engulf the shadows of the black body, instead completely engulfs the body itself. This is an important bottom reversal signal.

Bullish Engulfing

The Bullish Inverted Hammer

The Bullish Inverted Hammer consists of a black body followed by an Inverted Hammer. Its key characteristics are its long upper shadow and a small body. This pattern is similar in shape to the Bearish Shooting Star. However, the Inverted Hammer is usually observed in a downtrend and indicates a bullish reversal.

Inverted Hammer Shooting Star
Inverted Hammer, Shooting Star

The Bullish Morning Star

The Bullish Morning Star is a three-candlestick pattern. It signals a major bottom reversal. In this pattern, a black candlestick is followed by a short candlestick, which usually gaps down to form a Star. The third white candlestick’s closing is well into the first session’s black body. This is an important bottom pattern.

Bullish Morning Star

The Bullish Three White Soldiers

The Bullish Three White Soldiers is a pattern that signals a strong reversal in the market. There are three normal or long candlesticks moving upwards. The opening for each day is slightly lower than the previous close with the prices progressively closing at higher levels. The formed staircase-like appearance signals the reversal of the trend. Traders should be wary when they spot this pattern. Sometimes, candles that are too long to attract short sellers push the price of the stock down either further.

Three White Soldiers

These are five of the most popular bullish candlestick patterns that signal to buy opportunities. They can help traders spot a change in market sentiment where buyer pressure overcomes seller pressure. Such a downtrend reversal can hold the potential for long gains.

However, the bullish stock patterns themselves do not guarantee that the trend will reverse. Traders should always wait to confirm reversal by the subsequent price action before initiating a trade.

Using bullish candlestick patterns for stock trading can provide an extra layer of analysis on top of the fundamental analysis that forms the basis for trading decisions. For more information on how to use bullish candlesticks in your trading, you can check out our webinars to learn more.

FAQ

  • What is a bullish engulfing pattern?

    This is a two-candle reversal pattern where the second candle completely ‘engulfs’ the real body of the first one. The length of the tail shadows is irrelevant.

  • When do bullish candle patterns form?

    Bullish reversal patterns should form within a downtrend. Otherwise, they are simply a continuation pattern.

  • Do bullish reversal patterns require bullish confirmation?

    Yes. Bullish patterns must be followed by an upside price move in the form of a long hollow candlestick or a gap up and be accompanied by high trading volume. Typically, this confirmation should be observed within three days of the pattern.

  • How do you trade bullish candlesticks?

    Usually, traders take a long position when price breaks above the high of the bullish candlestick.

Discover more about trading strategies with FXTM’s helpful guide.

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