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.
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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