Candlestick patterns can reveal a lot about the underlying market sentiments. Using one of these candlestick patterns without knowing about the previous trends wouldnt be very useful. Based only on the market activity of the previous few days, most candlestick patterns are valid. For instance, some of the candlestick patterns indicate a change in trend.
Usually the context in which you find the candlestick pattern tells you a fantastic deal about what you should do based on that candlestick pattern. Lets consider simple candlestick patterns first.
The Bullish White Marubozu: A long white candle represents the day when bulls control the market. The bulls push prices higher from the opening to the closing. The longest white candle is the most bullish of the candlestick patterns. Chances are with the long white candle closing near the high, the bulls will be back for more buying the following day.
One common feature of the long white candle is an open near the low of the day and a close near the high of the day. This means that buying has been taking place all the day. With the long white candle, the low price on the candlestick is a excellent support level.
The Bullish Dragonfly Doji: For a Doji to be made, a day must start and end with the same price. A Doji is formed when the opening and the closing prices are the same. So essentially there is no stick in the candlestick.
Doji patterns are usually associated with a market turn. Doji depicts a day where the battle between the bulls and the bears has been honestly equal. A Doji may not look very exciting to you. But dont be fooled.
For those hoping that prices go higher, the price action depicted by the Dragonfly Doji bodes very well. A Dragonfly Doji is unique in that three of the four candlestick patterns- the open, high and the close are all equal. The low of the Dragonfly Doji day is considered a near term support level. You can make smart trades based on the Dragonfly Dojis.
The Bearish Long Black Candle: A long black candle means that sellers take over at the beginning of the day and push prices lower and lower until the end of the day. The long black candle is the direct counterpart of the long white candle discussed earlier. The long black candle is as bearish as it gets.
Price sensitivity is very low for these sellers and they are selling just to get out of their trades regardless of the prices. The long black candlestick pattern is a excellent bearish signal. You can capitalize on this fact. Seeing this type of enthusiastic selling must give you the confidence after the appearance of the long black candle that the bears will be in control for a few more days.