What is the Stalled Candlestick Pattern?

  •  5 min read
  • 0
  • 23 Nov 2023
What is the Stalled Candlestick Pattern?

A stalled pattern doesn't always mean a downward shift in the market. However, if the next candle after a stalled pattern goes below the middle of the second candle's body, there will likely be a bearish reversal. Traders often see this as a signal to think about cutting their losses. Reversals can happen rapidly, even in a single day, but market watchers are more interested in reversals that occur over longer periods, like weeks. Throughout the day, technical analysts keep an eye out for reversal patterns. Quick reversals within a day are often triggered by events like company announcements or news reports that can swiftly impact consumer or investor confidence.

The stalled candlestick pattern is made up of three upward-trending candles, and it suggests a potential shift to a bearish trend if the following conditions are met:

  • The opening and closing prices of each candle should be higher than the previous stalled candlestick.
  • The real body of the third candle should be shorter compared to the other two candles.
  • The third candle should have a long upper shadow, and its opening should be close to the closing price of the second candle.

The identification of a stalled candlestick pattern doesn't necessarily signify a bearish reversal. The only scenario in which the stalled candlestick pattern predicts a bearish reversal is when the candle displaying the pattern descends below the midpoint of the second candle's actual body. In such instances, traders are alerted to the need to consider minimising losses, as the securities' prices are anticipated to decline in the ensuing days. The stalled candlestick pattern indicates a temporary depletion of bullish strength and a shift in investor sentiment toward negativity. In a bullish market, stock prices consistently rise, with investors maintaining positions for optimal gains. Investors and traders actively seek indications of trend reversals, wherein the prevailing market trend takes a contrary direction.

The primary objective of candlestick patterns is to forecast the future trajectory of the market trend in the upcoming days. These patterns manifest as a result of both negative (falling) and positive (increasing) price actions. However, specific patterns, such as the widely utilised stalled candlestick pattern, serve as key tools for investors and traders in discerning signals and predicting the market's future direction.

The formation of the stalled candlestick pattern involves three consecutive bullish candles, signalling the current market's uptrend. The initial two candles, characterised by their considerable length, indicate the enduring strength of buyers who are actively engaging in the acquisition of new securities. Nevertheless, the extended length of these candles also suggests the potential for exhaustion, signifying a shift in investor sentiment towards negativity. The definitive confirmation of this shift occurs with the identification of the third candle.

The third candle, shorter than its predecessors, either sits on or exhibits a gap up on the shoulder of the second candle. This particular candle, officially constituting the stalled candlestick pattern, serves as a robust indicator of the exhaustion of the prevailing bullish trend. It confidently points toward an imminent bearish direction in the market. It is crucial to complement the analysis of the stalled candlestick pattern with other technical indicators to ensure that the findings align with the results of additional analyses.

The current market price of XYZ shares is Rs 150, reflecting a surge from Rs 75 within the past month amid a prevailing bullish market trend. However, a closer examination of the stock's candlestick pattern reveals the following characteristics:

  • Three consecutive bullish candlesticks with progressively higher high closes.
  • The initial two candlesticks are green, establishing new highs, succeeded by a third green candlestick that is shorter than its predecessors.
  • The final green candlestick either rises on the shoulder of the preceding long green body or shows a gap away from the last lengthier green body.

Once an investor identifies these three criteria, it indicates the formation of a stalled candlestick pattern. This pattern suggests an impending reversal in the current bullish market trend, signifying that XYZ's stock has reached a point of exhaustion. Consequently, the market price of Rs 150 is likely to decline. Investors holding the stock from the Rs 75 level to the current Rs 150 level may opt to sell their position to realise profits and safeguard against potential losses in the event of a trend reversal indicated by the stalled candlestick pattern.

Conclusion

The stalled candlestick pattern serves as an effective method for pinpointing optimal entry and exit points by recognising when a bullish trend has reached its point of exhaustion and is poised to reverse. Given the potential for false signals in candlestick patterns, it is advisable to employ additional technical indicators concurrently to validate the findings of the stalled candlestick pattern. This dual approach enhances the analysis of stocks, ensuring sound decision-making for maximising profits and minimising the risk of losses.

FAQs on Stalled Candlestick Pattern

Identify a sequence of progressively smaller bearish candles, starting with a larger one, followed by a smaller one, and then an even smaller one.

Utilise the Stalled Candlestick pattern to spot potential shifts in trends and establish entry or exit points within your trading approach.

While the Stalled Candlestick pattern offers valuable insights, it is not perfect and should be used alongside other technical analysis tools for confirmation.

Indeed, the Stalled Candlestick pattern can be applied to various timeframes, but it is crucial to account for the overall trend and market conditions to enhance accuracy.

Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage