You will rarely notice that strong stocks are making large moves in a single candle. They build momentum over multiple sessions, showing consistent buying interest and sustained strength. If you understand how to read this price behaviour, then you will be able to identify the strong stocks earlier.
One effective way to identify such a strength is through a multi-candle pattern. You can observe a continued dominance of buyers over sellers over several trading sessions. This article will guide you on using multi-candle patterns to identify strong stocks.
What are multi-candle patterns?
Multi-candle patterns are price formations that develop over two or more consecutive candlesticks. These patterns are more reliable as they reveal the price formation over multiple sessions. You can see how buyers and sellers are fighting for price as the pattern reveals the winner. When the buyers dominate for multiple candles, it indicates accumulation and growing confidence. While multiple strong red candles may signal distribution.
These patterns are more reliable when they appear:
- After a clear trend
- Near key support or resistance levels
- With a noticeable increase in volume
When such signs emerge, traders consider that the stock can be potentially strong.
Why multi-candle patterns help identify strong stocks
We will understand the characteristics of strong stocks.
- Strong stocks consistently show higher highs and higher lows.
- It has sustained bullish closes.
- A strong breakout follow-through.
- Expanding volume.
Multi-candle patterns capture this sustained momentum. Traders don’t react to a single spike; they wait and observe whether buying pressure continues over multiple sessions. It results in reduced false signals.
For example, a single green candle may simply be short covering. But three consecutive strong bullish candles suggest steady demand and possible institutional participation. Traders use a screener for stocks to quickly identify companies forming strong multi-candle patterns.
Key multi-candle patterns
Strongly trending stocks frequently exhibit the following multi-candle patterns. Persistent buying or selling pressure is reflected in these formations.
- Three white soldiers
The three white soldiers pattern has three successive bullish candles, each closing higher than the previous one. This pattern is usually seen after a downtrend or consolidation phase.
This pattern shows consistent buying pressure and indicates a strong momentum shift. Traders also consider it to be the beginning of a sustained uptrend. They enter into the trend after the closure of the third candle.
- Rising three methods
This is a continuation pattern seen during a strong uptrend. This pattern begins with a large bullish candle, followed by three small bearish candles; these three candles should stay within the range of the first candle. The last candle of the pattern is a strong bullish candle which closes above the previous high.
The pattern indicates a temporary pullback may be due to controlled profit booking, after the profit booking trend continues in an upward direction. Traders also view it as a sign of a strong stock.
- Three black crows
This pattern indicates the weakness, but traders use it to avoid weak stocks. This pattern is the opposite of the three white soldiers pattern. It consists of three consecutive strong bearish candles after an uptrend. Each candle closes lower than the previous one.
If a stock forms this pattern near resistance with rising volume, it signals distribution. Avoiding weak stocks is also very important.
Final thoughts
A deeper understanding of persistent buying or selling pressure can be gained from multi-candle patterns. They assist traders in concentrating on stocks that exhibit steady strength.
But no pattern ensures success. Even strong stocks are susceptible to sudden reversals. For this reason, confirmation and appropriate risk management are crucial.
