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Candlestick Patterns
Candlestick patterns are a crucial component of technical analysis, providing insights into market sentiment and potential price reversals. Here are some commonly used candlestick patterns in commodity trading:
Doji: A doji candlestick forms when the opening and closing prices are nearly identical, indicating indecision in the market. A doji may signal a potential reversal, especially when found at support or resistance levels.
Hammer and Hanging Man: A hammer candlestick has a small body at the top and a long lower shadow, suggesting that buyers are gaining strength. Conversely, a hanging man appears at the top of an uptrend, indicating potential selling pressure and a possible reversal.
Engulfing Patterns: A bullish engulfing pattern occurs when a larger bullish candlestick engulfs a smaller bearish candlestick, indicating a potential trend reversal to the upside. A bearish engulfing pattern signifies the opposite, with a larger bearish candlestick engulfing a smaller bullish one.
Shooting Star: A shooting star forms after an uptrend and features a small body with a long upper shadow, suggesting that buyers were unable to maintain control, potentially leading to a price reversal.
Morning Star and Evening Star: The morning star is a bullish reversal pattern that occurs after a downtrend, consisting of three candles: a bearish candle, a small-bodied candle, and a bullish candle. The evening star is the bearish counterpart, indicating a potential reversal after an uptrend.
Understanding these candlestick patterns can help traders identify potential market reversals and optimize their entry and exit points.