Most simply, candlestick charts are used by traders to represent the price evolution of an asset. While candlesticks may be harder to understand initially, they offer far more information than a simple line chart.
How to read a candle?
There are two colors: red and green. When a candle is red, its closing price was lower than the opening price: the price of the asset decreased during that trading period. When a candle turns green, the closing price was higher than the opening price as the asset's price increased.
Beyond color, let's break down the rest of the visual above:
Body: The body indicates the open-to-close range. In other words, it indicates the difference between the closing and the opening price.
Wicks: These are also called tails or shadows. They reveal the highest and lowest price of an asset within the candlestick period. If there is no wick, the opening and closing prices are the lowest/highest price.
Highest Price: The top of the upper wick indicates the highest price traded during the period.
Lowest Price: The lowest price traded during the period is indicated by the bottom of the lower wick.
Opening price: This is the price at which the first trade happened during the new candlestick time period. If the price goes up, the candle turns green and conversely turns red on a price decrease.
Closing price: The closing price is the last price traded during the period of the candle formation. If this price is above the opening price, the candle will be green, otherwise, it will be red.
Types of Candlestick Patterns:
The candlestick patterns can be divided into:
1.Continuation Patterns
2.Bullish Reversal Patterns
3.Bearish Reversal Patterns
We may further divide the above categories into further 35 sub-categories.
1. Hammer: Hammer is a single candlestick pattern that is formed at the end of a downtrend and signals bullish reversal. The psychology behind this candle formation is that the prices opened and sellers pushed down the prices.
2. Piercing Pattern: Piercing pattern is multiple candlestick chart pattern that is formed after a downtrend indicating a bullish reversal. It is formed by two candles, the first candle being a bearish candle which indicates the continuation of the downtrend.
3. Bullish Engulfing: It is formed by two candles, the second candlestick engulfing the first candlestick. The first candle is a bearish candle that indicates the continuation of the downtrend.
4. The Morning Star: It is made of 3 candlesticks, first being a bearish candle, second a Doji and the third being a bullish candle.
5. Three White Soldiers: These candlestick charts are made of three long bullish bodies which do not have long shadows and are open within the real body of the previous candle in the pattern.
6. White Marubozu: This candlestick has a long bullish body with no upper or lower shadows which shows that the bulls are exerting buying pressure and the markets may turn bullish. At the formation of this candle, the sellers should be caution and close their shorting position.
7. Three Inside Up: It consists of three candlesticks, the first being a long bearish candle, the second candlestick being a small bullish candle which should be in the range the first candlestick. The third candlestick should be a long bullish candlestick confirming the bullish reversal.
8. Bullish Harami: It consists of two candlestick charts, the first candlestick being a tall bearish candle and second being a small bullish candle which should be in the range of the first candlestick. The first bearish candle shows the continuation of the bearish trend and the second candle shows that the bulls are back in the market.
9. Tweezer Bottom: It consists of two candlesticks, the first one being bearish and the second one being bullish candlestick.
10. Inverted Hammer: In this candlestick, the real body is located at the end and there is a long upper shadow. It is the inverse of the Hammer Candlestick pattern.
11. Three Outside Up: It consists of three candlesticks, the first being a short bearish candle, the second candlestick being a large bullish candle which should cover the first candlestick.
12. On-Neck Pattern: The on neck pattern occurs after a downtrend when a long real bodied bearish candle is followed by a smaller real bodied bullish candle which gaps down on the open but then closes near the prior candle’s close.
13. Bullish Counterattack- This candlestick pattern is a two-bar pattern that appears during a downtrend in the market.
Bearish Candlestick Pattern:
14. Hanging man: The real body of this candle is small and is located at the top with a lower shadow which should be more than the twice of the real body. This candlestick pattern has no or little upper shadow. The psychology behind this candle formation is that the prices opened and seller pushed down the prices.
15. Dark cloud cover: It is formed by two candles, the first candle being a bullish candle which indicates the continuation of the uptrend. The second candle is a bearish candle which opens gap up but closes more than 50% of the real body of the previous candle which shows that the bears are back in the market and bearish reversal is going to take place.
16. Bearish Engulfing: It is formed by two candles, the second candlestick engulfing the first candlestick. The first candle being a bullish candle indicates the continuation of the uptrend. The second candlestick chart is a long bearish candle that completely engulfs the first candle and shows that the bears are back in the market.
17. The Evening Star: It is made of 3 candlesticks, first being a bullish candle, second a doji and third being a bearish candle.
18. Three Black Crows: These candlesticks are made of three long bearish bodies which do not have long shadows and open within the real body of the previous candle in the pattern.
19. Black Marubozu: This candlestick chart has a long bearish body with no upper or lower shadows which shows that the bears are exerting selling pressure and the markets may turn bearish. At the formation of this candle, the buyers should take caution and close their buying position.
20. Three Inside Down: It consists of three candlesticks, the first being a long bullish candle, the second candlestick being a small bearish which should be in the range the first candlestick. The third candlestick chart should be a long bearish candlestick confirming the bearish reversal. The relationship of the first and second candlestick should be of the bearish Harami candlestick pattern.
21. Bearish Harami: It consists of two candlesticks, the first candlestick being a tall bullish candle and second being a small bearish candle which should be in the range of the first candlestick chart.
22. Shooting Star: Shooting Star is formed at the end of the uptrend and gives bearish reversal signal. In this candlestick chart the real body is located at the end and there is long upper shadow. It is the inverse of the Hanging Man Candlestick pattern.
23. Tweezer Top: It consists of two candlesticks, the first one being bullish and the second one being bearish candlestick. Both the tweezer candlestick make almost or the same high. When the Tweezer Top candlestick pattern is formed the prior trend is an uptrend. A bullish candlestick is formed which looks like the continuation of the ongoing uptrend. On the next day, the high of the second day’s bearish candle’s high indicates a resistance level. Bulls seem to raise the price upward, but now they are not willing to buy at higher prices.
24. Three Outside Down: It consists of three candlesticks, the first being a short bullish candle, the second candlestick being a large bearish candle which should cover the first candlestick. The third candlestick should be a long bearish candlestick confirming the bearish reversal.
25. Bearish Counterattack– The bearish counterattack candlestick pattern is a bearish reversal pattern that appears during an uptrend in the market. It predicts that the current uptrend in the market will make and the new downtrend will take over the market.
Continuation Candlestick Patterns:
26. Doji: It is formed when both the bulls and bears are fighting to control prices but nobody succeeds in gaining full control of the prices.
27. Spinning Top: The only difference between spinning top and doji is in their formation, the real body of the spinning is larger as compared to Doji.
28. Falling Three Methods: The “falling three methods” is a bearish, five candle continuation pattern which signals an interruption, but not a reversal, of the ongoing downtrend.
29. Rising Three Methods: The “rising three methods” is a bullish, five candle continuation pattern which signals an interruption, but not a reversal, of the ongoing uptrend.
30. Upside Tasuki Gap: This candlestick pattern consists of three candles, the first candlestick is a long-bodied bullish candlestick, and the second candlestick is also a bullish candlestick chart formed after a gap up. The third candlestick is a bearish candle that closes in the gap formed between these first two bullish candles.
31. Downside Tasuki Gap: This candlestick pattern consists of three candles, the first candlestick is a long-bodied bearish candlestick, and the second candlestick is also a bearish candlestick formed after a gap down. The third candlestick is a bullish candle that closes in the gap formed between these first two bearish candles.
32. Mat-Hold-There can be either bearish or bullish mat hold patterns. A bullish pattern begins with a large bullish candle followed by a gap higher and three smaller candles which move lower.
33. Rising Window-The rising window is a candlestick pattern consisting of two bullish candlesticks with a gap between them. The gap is a space between the high and low of two candlesticks that occurs due to high trading volatility. It is a trend continuation candlestick pattern indicating strong strength of buyers in the market.
34. Falling Window-The falling window is a candlestick pattern that consists of two bearish candlesticks with a gap between them. The gap is a space between the high and low of two candlesticks. it occurs due to high trading volatility. It is a trend continuation candlestick pattern and it is an indication of the strong strength of sellers in the market.
35. High Wave-The high wave candlestick pattern is an indecision pattern that shows the market is neither bullish nor bearish. It mostly occurs at support and resistance levels.
How to read a candle?
There are two colors: red and green. When a candle is red, its closing price was lower than the opening price: the price of the asset decreased during that trading period. When a candle turns green, the closing price was higher than the opening price as the asset's price increased.
Beyond color, let's break down the rest of the visual above:
Body: The body indicates the open-to-close range. In other words, it indicates the difference between the closing and the opening price.
Wicks: These are also called tails or shadows. They reveal the highest and lowest price of an asset within the candlestick period. If there is no wick, the opening and closing prices are the lowest/highest price.
Highest Price: The top of the upper wick indicates the highest price traded during the period.
Lowest Price: The lowest price traded during the period is indicated by the bottom of the lower wick.
Opening price: This is the price at which the first trade happened during the new candlestick time period. If the price goes up, the candle turns green and conversely turns red on a price decrease.
Closing price: The closing price is the last price traded during the period of the candle formation. If this price is above the opening price, the candle will be green, otherwise, it will be red.
Types of Candlestick Patterns:
The candlestick patterns can be divided into:
1.Continuation Patterns
2.Bullish Reversal Patterns
3.Bearish Reversal Patterns
We may further divide the above categories into further 35 sub-categories.
1. Hammer: Hammer is a single candlestick pattern that is formed at the end of a downtrend and signals bullish reversal. The psychology behind this candle formation is that the prices opened and sellers pushed down the prices.
2. Piercing Pattern: Piercing pattern is multiple candlestick chart pattern that is formed after a downtrend indicating a bullish reversal. It is formed by two candles, the first candle being a bearish candle which indicates the continuation of the downtrend.
3. Bullish Engulfing: It is formed by two candles, the second candlestick engulfing the first candlestick. The first candle is a bearish candle that indicates the continuation of the downtrend.
4. The Morning Star: It is made of 3 candlesticks, first being a bearish candle, second a Doji and the third being a bullish candle.
5. Three White Soldiers: These candlestick charts are made of three long bullish bodies which do not have long shadows and are open within the real body of the previous candle in the pattern.
6. White Marubozu: This candlestick has a long bullish body with no upper or lower shadows which shows that the bulls are exerting buying pressure and the markets may turn bullish. At the formation of this candle, the sellers should be caution and close their shorting position.
7. Three Inside Up: It consists of three candlesticks, the first being a long bearish candle, the second candlestick being a small bullish candle which should be in the range the first candlestick. The third candlestick should be a long bullish candlestick confirming the bullish reversal.
8. Bullish Harami: It consists of two candlestick charts, the first candlestick being a tall bearish candle and second being a small bullish candle which should be in the range of the first candlestick. The first bearish candle shows the continuation of the bearish trend and the second candle shows that the bulls are back in the market.
9. Tweezer Bottom: It consists of two candlesticks, the first one being bearish and the second one being bullish candlestick.
10. Inverted Hammer: In this candlestick, the real body is located at the end and there is a long upper shadow. It is the inverse of the Hammer Candlestick pattern.
11. Three Outside Up: It consists of three candlesticks, the first being a short bearish candle, the second candlestick being a large bullish candle which should cover the first candlestick.
12. On-Neck Pattern: The on neck pattern occurs after a downtrend when a long real bodied bearish candle is followed by a smaller real bodied bullish candle which gaps down on the open but then closes near the prior candle’s close.
13. Bullish Counterattack- This candlestick pattern is a two-bar pattern that appears during a downtrend in the market.
Bearish Candlestick Pattern:
14. Hanging man: The real body of this candle is small and is located at the top with a lower shadow which should be more than the twice of the real body. This candlestick pattern has no or little upper shadow. The psychology behind this candle formation is that the prices opened and seller pushed down the prices.
15. Dark cloud cover: It is formed by two candles, the first candle being a bullish candle which indicates the continuation of the uptrend. The second candle is a bearish candle which opens gap up but closes more than 50% of the real body of the previous candle which shows that the bears are back in the market and bearish reversal is going to take place.
16. Bearish Engulfing: It is formed by two candles, the second candlestick engulfing the first candlestick. The first candle being a bullish candle indicates the continuation of the uptrend. The second candlestick chart is a long bearish candle that completely engulfs the first candle and shows that the bears are back in the market.
17. The Evening Star: It is made of 3 candlesticks, first being a bullish candle, second a doji and third being a bearish candle.
18. Three Black Crows: These candlesticks are made of three long bearish bodies which do not have long shadows and open within the real body of the previous candle in the pattern.
19. Black Marubozu: This candlestick chart has a long bearish body with no upper or lower shadows which shows that the bears are exerting selling pressure and the markets may turn bearish. At the formation of this candle, the buyers should take caution and close their buying position.
20. Three Inside Down: It consists of three candlesticks, the first being a long bullish candle, the second candlestick being a small bearish which should be in the range the first candlestick. The third candlestick chart should be a long bearish candlestick confirming the bearish reversal. The relationship of the first and second candlestick should be of the bearish Harami candlestick pattern.
21. Bearish Harami: It consists of two candlesticks, the first candlestick being a tall bullish candle and second being a small bearish candle which should be in the range of the first candlestick chart.
22. Shooting Star: Shooting Star is formed at the end of the uptrend and gives bearish reversal signal. In this candlestick chart the real body is located at the end and there is long upper shadow. It is the inverse of the Hanging Man Candlestick pattern.
23. Tweezer Top: It consists of two candlesticks, the first one being bullish and the second one being bearish candlestick. Both the tweezer candlestick make almost or the same high. When the Tweezer Top candlestick pattern is formed the prior trend is an uptrend. A bullish candlestick is formed which looks like the continuation of the ongoing uptrend. On the next day, the high of the second day’s bearish candle’s high indicates a resistance level. Bulls seem to raise the price upward, but now they are not willing to buy at higher prices.
24. Three Outside Down: It consists of three candlesticks, the first being a short bullish candle, the second candlestick being a large bearish candle which should cover the first candlestick. The third candlestick should be a long bearish candlestick confirming the bearish reversal.
25. Bearish Counterattack– The bearish counterattack candlestick pattern is a bearish reversal pattern that appears during an uptrend in the market. It predicts that the current uptrend in the market will make and the new downtrend will take over the market.
Continuation Candlestick Patterns:
26. Doji: It is formed when both the bulls and bears are fighting to control prices but nobody succeeds in gaining full control of the prices.
27. Spinning Top: The only difference between spinning top and doji is in their formation, the real body of the spinning is larger as compared to Doji.
28. Falling Three Methods: The “falling three methods” is a bearish, five candle continuation pattern which signals an interruption, but not a reversal, of the ongoing downtrend.
29. Rising Three Methods: The “rising three methods” is a bullish, five candle continuation pattern which signals an interruption, but not a reversal, of the ongoing uptrend.
30. Upside Tasuki Gap: This candlestick pattern consists of three candles, the first candlestick is a long-bodied bullish candlestick, and the second candlestick is also a bullish candlestick chart formed after a gap up. The third candlestick is a bearish candle that closes in the gap formed between these first two bullish candles.
31. Downside Tasuki Gap: This candlestick pattern consists of three candles, the first candlestick is a long-bodied bearish candlestick, and the second candlestick is also a bearish candlestick formed after a gap down. The third candlestick is a bullish candle that closes in the gap formed between these first two bearish candles.
32. Mat-Hold-There can be either bearish or bullish mat hold patterns. A bullish pattern begins with a large bullish candle followed by a gap higher and three smaller candles which move lower.
33. Rising Window-The rising window is a candlestick pattern consisting of two bullish candlesticks with a gap between them. The gap is a space between the high and low of two candlesticks that occurs due to high trading volatility. It is a trend continuation candlestick pattern indicating strong strength of buyers in the market.
34. Falling Window-The falling window is a candlestick pattern that consists of two bearish candlesticks with a gap between them. The gap is a space between the high and low of two candlesticks. it occurs due to high trading volatility. It is a trend continuation candlestick pattern and it is an indication of the strong strength of sellers in the market.
35. High Wave-The high wave candlestick pattern is an indecision pattern that shows the market is neither bullish nor bearish. It mostly occurs at support and resistance levels.