Good morning, financial market readers. I hope you know how important technical analysis is for trading in financial markets. One of the most popular tools used in technical analysis is the Japanese candlestick chart. This analysis method uses indicators like candlestick formations to interpret market psychology and make trading decisions. One of these formations, the "Homing Pigeon" candlestick pattern, is an important indicator that is especially used to identify trend reversals. In this article, we will take a detailed look at how the Homing Pigeon pattern is defined, interpreted, and how it can be used in trading strategies.
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| Homing Pigeon |
- Topic: Homing Pigeon
- Type: bullish
- Trend direction: reversal and correction
- Opposite pattern: Descending Hawk
Definition
Each movement of the candlesticks reflects the psychology of
market participants, and the Homing Pigeon pattern gives signals that this
psychology may be changing direction. The Homing Pigeon candlestick pattern is
a formation that appears at the end of a downtrend and signals a bullish
reversal. This pattern is a structure that stands out in Japanese candlestick
analysis and often indicates the end of downtrends and the beginning of an
uptrend. The Homing Pigeon pattern is formed by two candles:
- First candlestick: A long red bearish candle. This indicates the continuation of bear pressure and the trend moving downwards.
- Second candlestick: A shorter, bearish candle entirely within the body of the first candlestick. This shows a decrease in bear pressure and a preparation for bulls to take action.
The Homing Pigeon pattern is a two-candlestick pattern that
consists of two consecutive candles. The first candle forms during a downtrend
and shows a decline. The following second candle then forms within or near the
body of the previous candle. The second candle can often have a smaller body
and a smaller shadow.
Interpretation and Trading
The Homing Pigeon pattern is interpreted as a sign of a
bullish reversal because it appears at the end of a downtrend. The appearance
of this pattern shows that the downward pressure exerted by bears is starting
to ease and the bulls are preparing to move. The Homing Pigeon pattern can be
used as an indicator signaling a bullish reversal. The appearance of this
pattern is considered a signal to open a long position.
Buying: Once we are sure that the prices are rising in the
area where this pattern appears, that is, if the prices rise after the second
candle, we can take a Long position.
Stop Loss: A Stop Loss order can be placed below the level
where the Homing Pigeon formation appears or below a support level under the
pattern.
Target: Assuming that the level at which the pattern forms
is the beginning of an uptrend, we can think that the trend will continue and
the target will be at higher levels. For this reason, targets can be resistance levels observed on the chart or points where the price reached in previous
rises. In addition, risk/reward ratio and other technical tools can also be
used for target setting.
Here is an example of trading with the Homing Pigeon pattern
on the Boeing Company stock:
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| Homing Pigeon in Boeing Company stock. |
In addition, the Homing Pigeon candlestick pattern can lead
to a correction when it appears in strong trends. For example, see the chart
below for Bank of America Corporation stock:
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| Trend correction with Homing Pigeon in Bank of America stock. |
Don't forget. No trading strategy or pattern provides
absolute reliability when trading in the Forex market. Candlestick patterns
such as the Homing Pigeon pattern are no exception to this rule. Therefore, it
is important to be careful when using this pattern and not to trade based on
this pattern alone. The key to success in trading is to combine multiple
indicators and analysis methods. Patterns such as the Homing Pigeon pattern can
only indicate that the market may be changing direction, but they do not guarantee
it. When using this pattern, it is important to consider other technical
analysis tools and fundamental analysis elements as well.
Note 1: The Homing Pigeon pattern is similar to the
Harami candlestick pattern, but there are a few key differences. In
a Harami, the color of the second candle (bullish or bearish) does not matter.
In a Homing Pigeon, however, both candles must be bearish. Some traders believe
that both patterns are members of the same family.
Note 2: The opposite of the Homing Pigeon formation is known as the Descending Hawk candlestick pattern. The Descending Hawk is a bearish reversal formation that occurs at the end of a rising trend.