Candlestick Patterns

Trading Candlesticks

Candlesticks, are obviously an important tool used by a stock market trader. So we'll take a look at how trader identify and use candlesticks.

Candlestick charting technique is founded by Japanese people almost 300 years ago. The candlestick is a vertical, square or rectangle showing the period's trading range. A wide bar on the vertical line illustrates the difference between the open price and the closing price for the said period.

Take a look at following image to get basic understanding of candlestick parts:

Bullish candle is a Green or White candle which opens at low price and closes at high price for certain time period.

Bearish Candle is a Red or Black candle which opens at high price and closes at low price. In the above picture you can see that there are upper shadows and lower shadows. Shadow basically means a price rejection from a certain price level. The candle with longer shadow whether it is upper or lower one suggest a price reversal from a that level.

There are so many types of candlestick pattern. But I will cover only four types which are seen consistently the time period. You should only remember these patterns and study it carefully.

1. Doji

Doji

Doji is a very important candlestick pattern. It is formed when the open and close are approximately at the same price levels. It basically shows weakness in the current trend. Doji shows a situation where the buyers and sellers are evenly matched and there is an indecision with regard to future trend.

2. Hammer - Bullish

Hammer

The body of Hammer is small as compared to shadow. The color is not important. Hammer is generally a bullish pattern.

3. Hanging Man - Bearish

Hanging Man

Hanging man is same as hammer but when it forms on the resistance zone then there will be a reversal in an ongoing trend. Hanging man is bearish reversal candle pattern. The color of hanging man is not important.

3. Engulfing Pattern - Bullish

Bullish Engulfing

In a down trend, when price touches a support zone and when there is a formation of small red candle followed by big green candle showing that there could be possible trend reversal at that point. Bullish engulfing pattern takes place when there are more number of buyers than sellers.

4. Engulfing Pattern - Bearish

Bearish Engulfing

In an uptrend at a resistance point there is a formation of small green candle body followed by big red candle body. This certainly means that red body engulfs prior green body. Bearish engulfing pattern result in shifting of an uptrend to down trend.This pattern clearly tells us at that there are morre number of sellers present that buyers.

5. Morning Star - Bullish

Morning Star

Morning star is a bullish reversal candle pattern. This pattern consist of three candles. One big red candle followed by small red candle and finally a green big candle which shows a change in trend. It is effective when it forms on support zone.

6. Evening Star - Bearish

Evening Star

Evening Star is bearish candlestick pattern. It is three candle pattern which have one big green candle followed by small green candle and lastly there is big red candle which shows weakness in the current trend. This is very powerful pattern when it forms on Resistance zone.

7. Shooting Star - Bearish

Shooting star

The shooting star is a bearish candlestick pattern which indicates end of an uptrend. Shooting star has a long shadow from the upper side of the body which shows heavily price rejection. It is very powerful and effective when forms on Resistance zone with large volumes.

There are many more candle patterns but these 7 are the most important repeated candle patterns which you can see many times on the chart of any time frame.

That's it for now guys. 

Keep learning these patterns.