Candlesticks

A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts are one of the most popular components of technical analysis, enabling traders to interpret price information quickly and from just a few price bars, wherein each candlestick details a single day’s trading. Over time, individual candlesticks form patterns that traders can use to recognize major support and resistance levels. There are a great many candlestick patterns that indicate an opportunity within a market – some provide insight into the balance between buying and selling pressures, while others identify continuation patterns or market indecision.

	Candle Basics A candle has three basic features: The body, which represents the open-to-close range. The wick, or shadow, that indicates the intra-day or trade session high and low.The color, which reveals the direction of market movement – a green or white body indicates a price increase, while a red or black body shows a price decrease. These are known as traditional candles.
	Rising Three This is a bullish pattern, called the ‘rising three’ candlestick pattern. It comprises of three short reds sandwiched within the range of two long greens. The pattern shows that despite some selling pressure, buyers are retaining control of the market.
	Three White Soldiers The three white soldiers occur over three days or sessions. It consists of consecutive long green or white candles with small wicks which open and close progressively higher than the previous day or session. It is a very strong bullish signal that occurs after a downtrend and indicates prices are rising.
	Bullish A bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that is completely engulfed by a larger green candle. Though the second day or session opens lower than the first, the bull market pushes the price up and indicates prices will continue to rise.
	Hammer The hammer candlestick is a short body with a long lower wick and is found at the bottom of a downward trend. A hammer shows that although there were selling pressures during the day, strong buying pressure drove the price back up. The color of the body can vary, but green hammers indicate a stronger bull market than red hammers. A hammer is an indicator prices will rise.
	Morning Star A morning star pattern is considered a sign of hope in a market downtrend. It is a three-stick pattern: one short-bodied candle between a long red and a long green. Generally the ‘star’ will have no overlap with the longer bodies as the market gaps both on open and close. It signals that the selling is reducing and a rise in price is imminent.
	Inverse Hammer Bullish also is the inverted hammer which has the upper wick long and the lower wick is short. It indicates a buying pressure will raise prices and is followed by a selling pressure that was not strong enough to drive the prices down. The inverse hammer indicates buyers will cause a price rise.
	Doji When a market’s open and close are almost at the same price point, the candlestick resembles a cross or plus sign where the body is small and wicks can be any length. This is a doji pattern indicating neither buyers nor sellers can change prices. Alone a doji is neutral signal of market indecision, but it can be found in price reversal patterns such as the bullish morning star and bearish evening star.
	Dark Cloud This pattern indicates a bear price reversal – a black cloud over rising prices. It has two candlesticks: a red candlestick which opens above the previous green body and closes below its midpoint. It signals that prices will be sharply lower. If the wicks of the candles are short it indicates that the downtrend was very certain. The small green candle following confirms prices have fallen.
	Spinning Top The spinning top has a short body centered between wicks of equal length. This indicates indecision in the market, resulting in no change in price Spinning tops are a period of rest after a significant uptrend or downtrend. A single spinning top is harmless but can signify that the current market may change in either direction.
	Falling Three The falling three pattern is used to predict the continuation of a current trend, be it bearish or bullish. The bearish pattern is called the ‘falling three’. It has two long red bodies, with three small green bodies between the two – the green candles are all contained within the range of the red bodies. It indicates a very small, weak and temporary price change.
	Three Black Crows Three black crows has three consecutive long red candles with short or no wicks. Each session opens at a similar price to the previous, and selling pressures push the price lower and lower with each close. It is the start of a bearish downtrend due to strong selling pressures.
	Evening Star The evening star is a bearish pattern that is the equivalent of the bullish morning star. It is formed of a short candle or spinning top sandwiched between a long green candle and a large red candlestick. The uptrend reverses and is particularly strong when the next candlestick erases the gains of the first candle.
	Bearish A bearish pattern occurs at the end of an uptrend. The first candle has a small green body that is engulfed by a long red candle. It is a sign of an impending market downturn. The lower the second candle goes, the stronger the trend is likely to be.
	Hanging Man The hanging man is the bear equivalent of a hammer with the same shape but occurs at the end of an uptrend. It indicates that there was a significant sell-off and buyers were able to push the price up again. The large sell-off is often seen as an indication that price will reverse to be lower.
	Shooting Star A shooting star is the same shape as the inverted hammer and is formed in an uptrend with a small lower body, and a long upper wick. Usually, the market will rise slightly higher on opening and to a high before closing at a price near the open like a star falling to the ground after rising up briefly.
	Piercing Line The piercing line is also a two-candle pattern with a long red candle and followed by a long green candle. There is usually a gap down between the first candlestick’s closing price and the green candlestick’s opening. It indicates a strong buying pressure to raise prices above the previous session.

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