Top 3 Candlestick Patterns for Bull Markets

Bullish trends are the sugar of the stock market. In this blog we'll talk about the top 3 candlestick patterns for bull markets.

Bullish trends are:

  • Sweet
  • Everybody wants more of them
  • And too much will mess you up

It would be great if every market could always be a bull market, but it’s just not reality. Bull markets have to rest (which is where bear markets come in), and those rests are like a winter reset that sets everything up for the next big move.

Are you familiar with fruit trees? Many types of fruit trees require what is known as “chill time” every winter. For these trees to bear fruit the following year, the winter has to be cold enough to provide adequate “chill time” to the trees. For example, If apple trees are going to bear fruit they need 500+ hours chill time in the winter, where the temperature is less than 45º. 

Bearish moves in the stock market are like winter to fruit trees. The more chill time (bearish move), the better the fruit will be when it comes back (bull market).

So how can we better anticipate bull markets?

Here I’m going to share the Top 3 Candlestick Patterns for bull markets. There are more bullish patterns, but these three patterns are some of my favorites because of the predictive power they bring in anticipating bullish moves.

 

1. One White Soldier

The One-White Soldier candle pattern just might be the most predictive 2-candle pattern we find. Depending on the statistics you look at, this pattern leads to a bullish trend 68-70% of the time. 

Like most bullish reversal patterns, this pattern needs to occur after a downswing. It could be at the bottom of a prolonged bearish trend, or perhaps just a short term bearish retracement in a larger bullish trend, but regardless, it needs to occur at support, after a downswing.

Here’s what the pattern looks like:

As you can see from the picture, the first candle in this pattern is a good size (not small) bearish candle. This bearish candle suggests the bears are still in control.

Then on the second candle, the Bulls come back in and reverse the swing. Notice the opening price of the white candle gaps higher than the previous day’s close. This gap adds to the bullish momentum. Then by the end of the day, the second candle closes above the first candle’s previous open.

Everything about this candle pattern is bullish.
  • First, like all 2-day bullish reversals, it occurs at support after a downswing, and shows alternating colors, from black to white. The first day’s large black candle is a signal that the bears are in control. But the second day’s strong white candle is a signal that the bulls have harnessed control. The fact that this occurs at a known support is an indication that support is holding and the previous selloff is now in trouble.
  • The second reason this is a strong reversal pattern is because the real body of the second candle closes above the real body of the first candle. Not only does this show that the bulls have harnessed control, but they have done so in a way that overtook the progress of the bears from the previous day.
  • The third, and maybe most powerful reason this is a bullish signal, is because, for this candle pattern to be created, the stock had to gap up in the morning on the opening tick.

This gap up means, at the start of this day, there must have been an opening gap that on an intra-day look would reveal an opening breakaway gap. 

 

This opening gap tells us a very compelling story. A story that suggests the bulls have not just taken control, but they have done so dominantly from the opening bell.

The fact that all of this occurs at support is a strong suggestion of a bullish reversal (at least in the short term).

Alternating from black to white, the gap up, the close above the previous open, all happening at support - these are clear signs the bulls are taking control, and the sentiment is shifting to the bulls.

If you see this pattern you should:
  • Tighten any stops you might have in a bearish trade or just close the trades altogether.
  • Get ready to possibly reverse your position into a bullish trade.
  • Watch for additional confirmations of a new bullish trend.
  • Set a possible entry at the high of the 2nd candle.

If this pattern happens at support, and if oscillators (like stochastics or RSI) are very oversold, this is a very high probability trade.

 

2.  Bullish Engulfing Pattern

The Bullish Engulfing pattern is one of the more popular and well-known candle patterns, and there is a good reason it is so popular. According to Thomas Bulkowski, the Bullish Engulfing pattern breaks bullish at least 63% of the time.

Any pattern that performs as expected at least 2/3 of the time is something you can start to build very high probability trades around, and the Bullish Engulfing is no exception. That’s why it’s one of the top 3 bullish candlestick patterns.

Similar to the One-White Soldier, the bullish engulfing formation also closes above the preceding day’s open, reflecting that the bulls have taken back more territory than the bears.

The big difference is the bullish engulfing pattern gaps down at the market open instead of gapping up like the One-White soldier. 

Here’s what it looks like:


The general sentiment of this pattern is bullish, particularly if it occurs at support.

 

Like the One-White soldier pattern, the bullish engulfing pattern has three primary reasons it is particularly bullish:

  • The alternating colors from black to white, at support, is a clear signal that the previous bearish momentum has just lost steam and is ready to reverse in the opposite direction.
  • The fact the real body closes above the previous day’s open is a strong signal that the bulls are going to continue pushing the bears back.
  • The opening gap - this tells the biggest story.  Unlike the one white soldier which gaps up, the bullish engulfing pattern gaps down at open, as a last ditch gasp of the bears to achieve a push to a lower low.

The reality that the Bears tried to push lower and failed is extremely bullish. You should look to see this pattern at known support areas. When you identify it in this location, the predictive power is very high.

If you see this pattern you should:
  • Tighten any stops you might have in a bearish trade.
  • Consider closing any bearish trades.
  • Get ready to possibly reverse your position into a bullish trade.
  • Watch for additional confirmations of a new bullish trend.
  • One possible entry is the intra-day high of the 2nd candle.

Similar to the One-White soldier, if you do enough candlestick analysis, you will start to notice the bullish engulfing signals occurring at support in a significant percentage of bullish swings. When you see them, pay attention!

 

The One-White soldier and bullish engulfing pattern are two very strong bullish reversal candlestick patterns. They both occur with a relatively high frequency, and in both cases, they are an excellent predictor of an impending bullish swing.

If you want to be a great candlestick trader, learn these two patterns intimately and be prepared to trade them. If you do, both of these patterns will help you:

  • Lock in more profit.
  • Prevent more losses.
  • Get into more bullish trades sooner.

 

3. Rising 3 Method

This next pattern is what we call a “Rising 3 Method.” It's one of the original Sokyu Honma candlestick trading methods. The Rising 3 Method ('Rising 3' for short) is a continuation pattern that suggests a trend is going to continue bullish.

It also happens to be a very reliable bullish pattern! Thomas Bulkowski reports that it breaks bullish 74% of the time! That is a very high consistency.

The Rising 3 is actually constructed from 5 candles. The first one is a long bullish white candle, the next 3 are sideways and usually represented by spinning tops, and finally on the 5th day, the pattern finishes by showing another strong white candle.

The rising 3 is called such because of the three small candles that occur between the two larger candles on the outside.

As you can see, this pattern can be deceptive. It can be particularly deceptive if the three candles in the middle are black, as many traders mistake that to signal a bearish reversal is forming. 

In most circumstances, when you see a rising 3, you can put an entry trigger just above the 5th candle and enter the bullish trade. It is a very strong continuation signal. 

 

The Rising 3 Method is a signal which has appeared at some of the most pivotal continuation points in recent trading history. Examples of the Rising 3 accurately anticipating the continuation of a bull swing are ample. The reality is far more often than not when you see a Rising 3 method, it is likely to continue the bull swing. 

Wrap up:

 Here you have seen three great patterns which when recognized, will help you better trade during a bull market.

Like all candlestick patterns, you need to learn to recognize these patterns and trade with the suitable strategies and of course good capital protection.

When implemented properly, the One-White Soldier, Bullish Engulfing, and Rising 3 Method are a collection of candlestick patterns that will indeed help you make serious money trading a bull market!

Here you learned the Top 3 Candlestick Patterns for bull markets. There are more bullish patterns, but these three patterns are some of my favorites because of the predictive power they bring in anticipating bullish moves.


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