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CANDLESTICKS – A TRADING NAVIGATOR


If you are new to Candlesticks, then this is the right time to get informed about it. Every beginner in trading will start his journey from basics then move to expert level. So, candlesticks are the best trading tool to enhance trading knowledge. A little history is linked with candlesticks. 
Let’s take a look on it.


“THE FUTURE IS NAVIGATED BY HISTORIC METHOD.”


Candlestick is an invention which took place in JAPAN. It’s been used since ancient times (1603-1868). The main purpose of candlesticks was to monitor and forecast price movements of the country’s most priced commodity – RICE. Japanese candlesticks are considered as the most effective ways to read price movements in financial market. The charting and techniques are still used in present time. Gradually, this method was accepted by many others too. Many of them replicated it and some also refined it. Among all those, only one name is considered. The man who changed the view of present charts and technical analysis is CHARLES DOW. He is also known as the father of Technical Analysis.


So, the history was very interesting and amazed many of us.
Now, let’s understand the technicality of candle sticks.

The candlesticks have 3 key uses;

1.      Visual dynamics
2.      Precision timing and
3.      Enhances technical analysis techniques.

Do you know, how candle sticks look like?

It’s as similar to our Candles which we use to light up during several occasions and events.


CANDLESTICK


Before getting deep into this topic, it’s very important to understand the basic components and parts of the Candlestick. Take a look into the image and then proceed to understand further elements.






·         The candlesticks are mostly represented into GREEN and RED colours. There are other colours too but WHITE and BLACK colour was mostly used in past.

·         Green indicates BULL and red indicates BEAR. That forms a fight between BULLISH and BEARISH markets.

·         Bulls attack pattern is from downward position to upward position, whereas the bears attack pattern is from upward to downward position. This is represented as Bullish (BUYERS) and Bearish (SELLERS).

·         A candle consists 4 important components: OPEN, CLOSE, LOW and HIGH.

·         ‘Open’ represents the price of an asset when the trading period begins and ‘Close’ represents the trading price when the period has come to an end.

·         ‘High’ and ‘Low’ represents the market price at the given time period.

·         The candle has a Real Body and a Wick/Shadow. The real body is the wide mid-section and the wick is the thin extended line on which the candle shows where the momentum was offset.

Once you understand the formation and basics of Candlesticks then the further topics will be easily understandable.

Basically, candlesticks are categorized as per types and pattern. There are mainly 3 types of Candlesticks – Bullish Candlestick, Bearish Candlestick and Neutral Candlestick.

Let’s understand them as per their patterns which is very useful in trading.



1.     DOJI STAR




·         It provides a signal of indecision, vulnerability, uncertainty, all of which can be considered ‘NEUTRAL’ or lead to a reversal.

·         This candlestick pattern Open/Close at same level or near.




2.     HAMMER




·         It is formed of a short real body with a long lower wick/shadow.

·         It is always seen in downward trend.

·         Green hammer indicates a stronger bull market than red hammer.

·         The signal is bullish reversal when in downward trend.




3.     INVERTED HAMMER




·         Inverted hammer is just like hammer but upside down.

·         It has a short real body with long upper wick/shadow.

·         Inverted Hammer suggests that buyers soon might gain control over the market.

·         The signal is bullish reversal pattern.




4.     SHOOTING STAR




·         It is formed of a short real body with long upper wick/shadow.

·         It is as similar to inverted hammer but is found in upward trends.

·         It shows that the market reached high but the seller has taken control over it which resulted in price slashed down.

·         It is a bearish reversal pattern.




5.     HANGING MAN




·         It is formed of a short real body with longer lower wick/ shadow.

·         It is as similar to hammer but is found in the upward trends.

·         It is an indicator that bulls have controlled the market but not for a longer time. Soon, the market may be in the bearish side.

·         It is a bearish reversal pattern.




6.     THREE WHITE SOLDIERS




·         It can be seen when three consecutive candles occur side by side.

·         Each candle begins at or near the range of the body of the previous candlestick.

·         It is a positive sign of healthy rise in market.

·         The signal is bullish reversal pattern.




7.     THREE BLACK SOLDIERS




·         Similar to the three white soldiers, it also has a pattern of 3 consecutive candles which occurs next to each other.

·         This shows a continuous selling pressure which drives the price down from higher to lower.

·         It is a bearish reversal pattern.




8.     BULLISH HARAMI




·         Bullish Harami is a long red candle followed by a smaller green candle.

·         Bullish indicates the pattern of slowly rise in buyers and decrease in sellers.

·         The signal is bullish reversal pattern when found in downtrend.




9.     BEARISH HARAMI




·         Bearish Harami is a long green candle followed by a smaller red candle.

·         Bearish indicates the pattern of slowly rise in sellers and fall of buyers.

·         The signal is bearish reversal pattern when found in uptrend.




10.  DARK CLOUD COVER




·         It must be located in uptrend.

·         The red bearish candle is risen 50% of the prior green candle’s body.

·         It implicates that the momentum might shift from upside to downside.

·         Dark clouds indicate the predictive side of market price to be positioned in coming time.

·         The signal is bearish reversal pattern.




11.  RISING THREE METHODS




·         It comprises of three short red candles crushing between two long green candlesticks.

·         Despite of selling pressure, the buyers are retaining the position.

·         Buyers are taking control over the sellers.

·         The signal is bullish continuation when ‘Rising’.





12.  FALLING THREE METHODS




·         It comprises of three short green candlesticks getting crushed between two long red candlesticks.

·         Here, the bulls have low potential to take control over the bears which results in the downfall.

·         It is the inverse form of rising three methods.

·         The signal is bearish continuation when ‘Falling’.


These are some important patterns which is considered while trading.




MORE ABOUT CANDLESTICK


Actual View of Candlesticks


It is used to describe price actions in market during a given time frame. When combining candlesticks, they form patterns that serve to predict the short-term and long-term price movements of an asset. Predictive analysis is carried out using Candlesticks. The price motion and variations can be checked through it.



A Closer View of Candlesticks


Hourly, daily, weekly, monthly, yearly and all-time data analysis can be carried out effectively. It is a visual record which helps to understand easily. It is a most important tool for traders resembling to any kind of trading fields. It is not used for predicting time for a longer time.




BONUS

Candlestick Patterns:


1.    Single Line

·         Doji
·         Hammer
·         Shooting Star
·         Hanging Man
·         High Price Gapping Play/ Low Price Gapping Play
·         Belt Hold Line


2.    Two Line

·         Engulfing
·         Harami
·         Piercing Line
·         Dark Cloud Cover
·         Tweezer Top/ Tweezer Bottom


3.    Three Line

·         Morning Star
·         Evening Star
·         Upside-Gap Two Crows
·         Three White Soldiers
·         Three Black Crows
·         Tasuki Gap
·         Gapping Side-By-Side White Lines
·         Advance Block
·         Abandoned Baby
·         Rising 3 Methods/ Falling 3 Methods


Finally, the topic ends here. I know the blog is lengthy but the content is very informative. Go through it properly and understand the basics. I am sure this will be very helpful for everyone related to trading background.

If you like my work, please share this blog with your contacts and leave a comment below.

Thanks for your patience and reading.😃

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