Difference Between Candlestick Pattern and Chart Pattern (2024)

FAQs

What is the difference between candlestick patterns and chart patterns? ›

Candlestick patterns focus on individual price bars, typically representing short-term price movements within specific timeframes (e.g., minutes, hours, or days). Chart patterns analyze a series of price bars or candlesticks over a more extended period, often focusing on daily, weekly, or even monthly data.

The accuracy of a candlestick pattern can vary based on market conditions and the context in which it appears. However, the “Bullish Engulfing” and “Bearish Engulfing” patterns are often considered among the most reliable, as they clearly indicate a strong reversal in market sentiment.

Candlestick charts are best for detailed, short-term analysis while line charts for long.

Bar charts and candlestick charts show the same information, just in a different way. Candlestick charts are more visual due to the color coding of the price bars and thicker real bodies. Highlighting prices this way makes it easier for some traders to view the difference between the open and close.

Price action trading and candlestick patterns are probably the most commonly used concepts of technical analysis. At the same time, there are lots of misconceptions and half-truths floating around which cause confusion and wrong trading decisions.

Engulfing Pattern

This is one of the best candlestick patterns and involves two adjacent candles. Here, the next candle engulfs or completely covers the previous candle signalling a change in trend.

In some cases, traders believe them to be reliable indicators, and plenty of performance percentage claims online support that assumption. A study by Michael Kahn indicated that chart patterns exhibit a degree of accuracy in predicting price reversals, attributing an 89% success rate to the head and shoulder pattern.

Candlestick patterns alone may not provide enough information for a reliable trading decision. For instance, if one spots a Bullish Engulfing pattern (a potential bullish reversal) on a forex chart, looking for additional confirmatory factors is crucial.

The Head and Shoulders pattern is widely used among traders and is considered one of the most reliable reversal patterns. The timeframe of these patterns includes a few weeks to many months.

Candlestick charts are perhaps the most widely used among active traders. In some ways, candlestick charts blend the benefits of line and bar charts as they convey both time and impact value. Each candlestick represents a specific timeframe and displays opening, closing, high, and low prices.

Why do people choose candlestick over bar chart? ›

Candlestick charts are the source of more online Forex trading patterns than bar charts. Of course, bar charts may be used to depict patterns. Candlestick charts, on the other hand, are favoured since the patterns were created expressly for them.

While candlestick patterns offer insights into market psychology and can indicate potential price movements, they are not foolproof predictors of future trends. Market conditions can change rapidly, rendering previously reliable patterns less effective.

Strong candlestick patterns are at least 3 times as likely to resolve in the indicated direction (greater than or equal to 75% probability).

Some investors find them more visually appealing than the standard bar charts and the price actions easier to interpret. Candlesticks are so named because the rectangular shape and lines on either end resemble a candle with wicks. Each candlestick usually represents one day's worth of price data about a stock.

A big green candle usually means there's strong buying pressure (bullish sentiment), while a big red candle suggests strong selling pressure (bearish sentiment). Understanding these candlestick patterns in the context of a specific asset or market situation is part of a trading approach called technical analysis.

There are 42 recognized patterns that can be split into simple and complex patterns. Author Thomas Bulkowski takes an in-depth look at 103 candlestick formations, from identification guidelines and statistical analysis of their behaviour to detailed trading tactics.

The cup and handle chart pattern is a bullish continuation pattern that occurs during an uptrend in the market. It is a long-term upward trend, followed by a cup-shaped consolidation period, and then a short consolidation period in the shape of a handle.