Candlestick charts were born in Japan. When? No one knows exactly, but at that time in Japan there were old schools that taught technical analysis for rice trading. Until one day a westerner named 'Steve Nison' discovered and first learned the secret of this Japanese technique from his acquaintance, a fellow Japanese broker.

Since then Steve became obsessed with this technique, he began to study, research, write, and slowly began to grow popular around the 90s. Candlestick is the name of a graph that resembles a candle stick. Candlesticks include a body and a tail (shadow). Candle analysis uses Opening Price data (open), Highest (high), Lowest (low) and Closing (close).

 

If the closing price is above the opening, the candle body is usually white or green. If the closing price is below the opening, the candle body is usually black or red. Meanwhile, the line above the body is called the upper shadow.

On the white/green body, the upper shadow represents the level of greedy buyers while on the black/red body, the upper shadow shows the fear of buyers. The line below the body is called the lower shadow, on the white/green body the lower shadow represents the fear of sellers.

While on the black body the lower shadow shows the level of greedy sellers. In essence, candlesticks are used to determine the pressure/strength exerted by buyers and sellers. At the end of the period of the contest of strength/pressure, it will be seen in the length of the body and its shadow.

Types of Candlesticks

Spinning Top

Candles with long upper shadows, long lower shadows and small bodies are called spinning tops. The color of the body is not very important. This pattern shows indecision between buyers and sellers.

When a Spinning top occurs during an uptrend, it usually means that there are not many buyers left and a reversal is likely. When a Spinning top occurs during a downtrend, it usually means that there are not many sellers left and a reversal is likely.

Marubozu

Marubozu means no shadow from the body (no tail). Depending on whether the candle body is filled or empty, the high and low are the same as the open or close. The open is the same as the low and the close is the same as the high. This is a very bullish candle because buyers were in control the entire session. This is usually the first part of a bullish continuation or bullish reversal pattern.

A black/red Marubozu contains a long black/red body with no shadows/tails opening equal to the high and closing equal to the low. This is a very bearish candle because it shows sellers controlling price throughout the session. It usually implies a bearish continuation or bearish reversal.

Doji

Doji candles have the same open and close or at least their bodies are very small. Doji should have a very small body that appears as a thin line. Doji candles indicate indecision or a struggle for position between buyers and sellers.

Price moves above and below the open price during the session, but close to or very close to the open price. Both buyers and sellers are in control and the result is a tie. There are five (5) types of Doji. The length of the upper and lower shadows can vary and the resulting candle looks like a cross, inverted cross or plus sign.

Hammer and Hanging Man

The Hammer and Hanging Man look exactly the same but have different meanings depending on past price action. Both have cute little bodies (either black/white or red/green), long lower shadows, and short or non-existent upper shadows.

Hammer is a bullish reversal pattern that forms during a downtrend. It is called a hammer because the market is hammering the bottom. Hanging Man is a bearish reversal pattern that can also mark the Resistance level.

Inverted Hammer and Shooting Star

The Inverted Hammer and Shooting Star also look the same. The only difference between them is whether you are in a downtrend or an uptrend. Both candles have tiny little bodies (filled or hollow), long upper shadows, and smaller or no lower shadows.

Inverted Hammer occurs when price has fallen there is a possibility of a reversal, the long upper shadow shows that buyers are trying to bid higher prices. Shooting star is a bearish reversal pattern that looks identical to the inverted hammer, but occurs when price has risen high.

Engulfing Candle

The bullish engulfing pattern is a pattern where two candlesticks signal that the price may move up very strongly. This occurs when a bearish candlestick is immediately followed by a larger bullish candlestick. The second candlestick “engulfs” the bearish candlestick. This means that buyers are flexing their muscles and are likely to move very strongly after a downtrend or consolidation period.

The bearish engulfing pattern is the opposite of the bullish pattern. This type of pattern occurs when a bullish candle is immediately followed by a bearish candle that completely “engulfs” the previous candle. This means that sellers are overwhelming buyers and a strong downward move is likely.

Evening and Morning Star

Morning star and evening star are three candlestick patterns that you can usually find at the end of a trend. They are reversal patterns that can be recognized by three characteristics:

  1. The first bar is a bullish candle, which is part of the recent uptrend.
  2. The second candle has a small body, indicating that there may be some confusion in the market. This candle can be either bullish or.
  3. The third candle acts as confirmation that a reversal is underway, with the candle closing beyond the midpoint of the first candle.

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