How to Identify Candlestick Patterns

The study of candlestick patterns is a key part of technical analysis, with various patterns such as triangles, rectangles, head and shoulders, and bottoms, which contain various timing signals.

In order to better utilize these patterns, you must use pattern tools to make them "show their true colors" on the chart. Below, we will look at a practical example.

Assuming we have a trend chart as shown below, after observation, we can see that there are two top areas in the candlestick chart, with signs of price decline. This is what we often call a double top pattern, also called "M top". The "M top" is usually regarded as a reversal signal in the stock market.

Select "M head W bottom" in the drawing tools and lock in several high and low points to draw the "M" top. Then use a line segment to connect two low price points. The "M" top pattern has a critical position, also called the neckline. Once the price falls below the neckline, it often means that the price may fall further.