Learn with ETMarkets: How to master candlestick patterns to decipher price action in gold and silver?

Hammer: Resembling a hammer, this pattern features a long lower wick, a small real body, and little or no upper wick. It appears at the bottom of a downtrend, suggesting buyers are stepping in to push prices higher despite selling pressure during the day.

Inverted Hammer: The inverted hammer is the bullish counterpart of the hammer. It appears at the top of an uptrend, with a small real body positioned at the bottom and a long upper wick. This pattern suggests sellers are attempting to drive prices down, but buyers are emerging to push prices back up by the close.

Bullish Engulfing Pattern: This two-candle pattern signifies a potential reversal with strong conviction. A bullish engulfing pattern occurs when a large bullish candlestick completely engulfs the real body of the preceding bearish candlestick. Conversely, a bearish engulfing pattern is formed by a large bearish candlestick engulfing the real body of the preceding bullish candlestick.

Bearish Engulfing Pattern: On the other hand, the Bearish Engulfing Pattern is a two-candle pattern where the second candle completely engulfs the body of the previous candle. It indicates a shift from bullish to bearish sentiment, with sellers overpowering buyers. In MCX Gold and Silver trading, a Bearish Engulfing Pattern forming after an uptrend could signal a potential reversal, with sellers taking control and driving prices lower.

Bullish Harami Pattern: The Bullish Harami Pattern is a two-candle pattern that occurs during a downtrend, where the first candle is a large bearish candle, followed by a smaller bullish candle that is completely engulfed by the body of the previous candle. This pattern indicates a potential reversal, with the smaller bullish candle signaling indecision and possible buying pressure.

Bearish Harami Pattern: Conversely, the Bearish Harami Pattern is a two-candle pattern that occurs during an uptrend, where the first candle is a large bullish candle, followed by a smaller bearish candle that is completely engulfed by the body of the previous candle. This pattern suggests a potential reversal, with the smaller bearish candle indicating indecision and potential selling pressure.

Remember: Candlestick patterns are not guarantees of a reversal. They should be analysed in conjunction with other technical indicators and considered

within the broader market context for a more comprehensive trading strategy.

Beyond the Basics Mastering candlestick patterns goes beyond memorizing their shapes. Here are some additional pointers to consider:

Confirmation: Look for confirmation signals from other technical indicators or price action to strengthen the reversal potential suggested by the candlestick pattern.

Placement on the Chart: The location of the candlestick pattern on the chart can influence its significance. Patterns appearing near support or resistance levels often carry more weight.

Context Matters: Always consider the prevailing trend and market sentiment when interpreting candlestick patterns.

(The author is Vice President Commodity Research at LKP Securities)