Equity markets were up overall this past week, and the S&P 500 notably crossed above its 200-day moving average for the first time since March. Still, ongoing market volatility has remained, producing wide price swings that have continued to spook investors. This volatile market environment has prevailed on and off for more than three months as the economic effects of the global coronavirus pandemic continue to reverberate.
While longer-term investors may have a strong aversion to the exaggerated market moves that have been the rule of late, shorter-term traders tend to prefer them. Larger price moves provide more potential opportunities for short-term profits (as well as for losses). In fact, we've seen trading volumes soar during the current economic crisis as experienced traders become even more active and new traders open brokerage accounts in droves.
For such shorter-term traders, technical analysis remains the overwhelmingly preferred trading strategy. Technical analysis is a comprehensive body of knowledge and set of tools meant to identify trading opportunities through the analysis of price movement, trading volume, chart patterns, and mathematical indicators.
Here at Investopedia, we've seen reader interest in technical analysis topics spike sharply throughout the past several weeks and months. This past week, readers were especially interested in candlestick charts and patterns—the Japanese style of charting that has become the preferred method of visual price interpretation for traders and investors around the world.
Here are some of the top spiking technical analysis articles this week:
Candlestick charts originated in Japan over 100 years before the West developed the bar and point-and-figure charts. Candlesticks visually represent price moves with different colors and structural elements. Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price.
Here's an example of one candlestick pattern—the bullish engulfing pattern—seen recently on a current daily chart of Tesla Inc. (TSLA):
Many traders can identify dozens of candlestick patterns and formations, which have colorful names like bearish dark cloud cover, evening star and three black crows. In addition, single bar patterns including the doji and hammer have been incorporated into dozens of long- and short-side trading strategies. Five of the most powerful candlestick patterns can be found here.
Below is a current example of a three black crows pattern seen on a daily chart of Netflix Inc. (NFLX):
Bullish reversal patterns should form within a downtrend. Otherwise, it’s not a bullish pattern, but a continuation pattern. Most bullish reversal patterns require bullish confirmation. In other words, they must be followed by an upside price move.
Below is a current daily chart of Apple Inc. (AAPL) showing one of these bullish candlestick patterns—the hammer:
Here's a current daily chart of Apple Inc. (AAPL) with an example of a hanging man reversal pattern: