Yes, you should be aware of them even if you don’t trade patterns as such. They demonstrate price action, support & resistance levels and simple chart dynamics like trends, and they are useful guides to market participants’ psychology and buying / selling preferences.
Chart patterns is the most interesting thing in the whole technical analysis. Actually, they are more useful than any other tools like indicators or candlestick patterns. They will help you to understand the situation and sometimes even to make relatively accurate assumptions on the upcoming price changes.
You can easily find detailed information on the most popular chart patterns. It would be interesting to save templates and then try to find them on charts. You can also create your own collection of chart patterns – this will give you better understanding of instruments you are trading.
Of course, indicators are important too, but in most of the cases they just provide additional confirmation for the signals provided by chart patterns, and the situation with candlestick patterns is nearly the same.
Another important point is that one can use the same chart patterns at any market, so this approach is very flexible. If you will find some books dedicated to chart patterns in commodities or stocks, you can use them too.
But don’t spend too much time on these things and the different names they have.
Know what a Doji, Shooting Star, or Hammer candle is. Know what a Head and Shoulders is. And otherwise, look for ‘M’ or ‘W’ structure to give signs of reversals and/or continuations. ‘M’ structure is obviously bearish – Highest High – higher low – lower high – lower low, and ‘W’ structure is bullish. Lowest low – Lower high – Higher Low, Higher high.
Know what a pennant is, a descending triangle, and an ascending triangle, and the way that price usually (although not always) breaks from these formations.
Source: BabyPips
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The hammer is a bullish reversal pattern that forms during a downtrend. It is named because the market is hammering out a bottom.
The inverted hammer occurs when price has been falling suggests the possibility of a reversal. Its long upper shadow shows that buyers tried to bid the price higher.
The bullish engulfing pattern is a two candlestick pattern that signals a strong up move may be coming.
The most effective Tweezers have the following characteristics:
Spinning Tops
The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand.
A White Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price.
When a Doji forms on your chart, pay special attention to the preceding candlesticks.
If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak.
While the decline is sputtering due to lack of new sellers, further buying strength is required to confirm any reversal. Look for a white candlestick to close above the long black candlestick’s open.
The same thing when it comes to financial markets. If you don’t know how to read Japanese candlesticks, you will never be able to trade the market.
Munehisa Homma (aka Sokyu Homma), a Japanese rice trader born in the early 1700s, is widely credited as being one of the early exponents of tracking price action. He understood basic supply and demand dynamics, but also identified the fact that emotion played a part in the setting of price. He wanted to track the emotion of the market players, and this work became the basis of candlestick analysis. He was extremely well respected, to the point of being promoted to Samurai status.
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