The next sets of candlesticks shown below are known as the “hammer” and the “hanging man.” The lower shadows attached to the bodies should be twice the length of the real body itself. These candlesticks will have no upper shadow and appear to have a “flat head.” When you come across a hammer which has formed after a downtrend, remember that the trend may then slow down and change direction by moving sideways or changing directions by heading straight into an uptrend. A hanging man represents the exact opposite. Once you see a hanging man following an uptrend, take profits right away. This is a selling indicator which now represent a change in trend may occur in a negative direction.

In the next graph we will take a look at “bullish engulfing” and “bearish engulfing” patterns. These patterns can also predict a trend change. This pattern consists of two candlestick bodies of opposing color in which the second body is larger and “engulfs” the previous body. Remember that these reversal patterns do not always promise a trend change. Instead, they should be viewed upon as a “look out” for price changes in the future.

This figure shows another type of reversal pattern, the “dark cloud,” in which appears at the height of an uptrend or near the top of a sideways move. Here, the first real body is clear and long while the second real body opens above the close of the first, but closes near the low of the trading range. This second move should penetrate deep into the territory that the first real body was trading in. The deeper the pullback, the more bearish of an indicator the signal becomes. On the other hand, the “bullish piercing” pattern, shows us a bullish trend reversal in which a long dark real body precedes a long white real body. This powerful reversal pattern will take place at the bottom of a downtrend.