How to Read Candlestick charts?
Candlestick charts were originated in Japan over 100 years before the West had developed the bar charts and point-and-figure charts. In the 1700s, a Japanese man known as Homma discovered that as there was a link between price and the supply and demand of rice, the markets also were strongly influenced by the emotions of traders.
A daily candlestick charts shows the security’s open, high, low, and close price for the day. The candlestick’s wide or rectangle part is called the “real body” which shows the link between opening and closing prices.
This real body shows the price range between the open and close of that day’s trading.
When the real body is filled, black or red then it means that the close is lower than the open and is known as the bearish candle. It shows that the prices opened, the bears pushed the prices down and closed lower than the opening price.
If the real body is empty, white or green then it means that the close was higher than the open known as the bullish candle. It shows that the prices opened, the bulls pushed the prices up and closed higher than the opening price.
The thin vertical lines above and below the real body is knowns as the wicks or shadows which represents the high and low prices of the trading session.
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1- Hammer Candle
Hammer is a single candlestick pattern that is formed at the end of a downtrend and signals a bullish reversal.
The real body of this candle is small and is located at the top with a lower shadow which should be more than twice the real body. This candlestick chart pattern has no or little upper shadow.
The psychology behind this candle formation is that the prices opened, and sellers pushed down the prices.
Suddenly the buyers came into the market and pushed the prices up and closed the trading session more than the opening price.
This resulted in the formation of bullish pattern and signifies that buyers are back in the market and downtrend may end.
Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of Hammer.
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2- Hanging Man
Hanging Man is a single candlestick pattern which is formed at the end of an uptrend and signals bearish reversal.
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.
Suddenly the buyers came into the market and pushed the prices up but were unsuccessful in doing so as the prices closed below the opening price.
This resulted in the formation of bearish pattern and signifies that seller are back in the market and uptrend may end.
Traders can enter a short position if next day a bearish candle is formed and can place a stop-loss at the high of Hanging Man.
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3- Three White Soldiers
The Three White Soldiers is a multiple candlestick pattern that is formed after a downtrend indicating a bullish reversal.
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.
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4- Inverted Hammer
An Inverted Hammer is formed at the end of the downtrend and gives a bullish reversal signal.
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.
This pattern is formed when the opening and closing prices are near to each other and the upper shadow should be more than twice the real body.
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5- Piercing Pattern
Piercing pattern is a multiple candlestick chart pattern formed after a downtrend indicating a bullish reversal.
Two candles form it, the first candle being a bearish candle which indicates the continuation of the downtrend.
The second candle is a bullish candle which opens the gap down but closes more than 50% of the real body of the previous candle, which shows that the bulls are back in the market and a bullish reversal is going to take place.
Traders can enter a long position if the next day a bullish candle is formed and can place a stop-loss at the low of the second candle.
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6- White Marubozu
The White Marubozu is a single candlestick pattern that is formed after a downtrend indicating a bullish reversal.
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.
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Candlestick charts were originated in Japan over 100 years before the West had developed the bar charts and point-and-figure charts. In the 1700s, a Japanese man known as Homma discovered that as there was a link between price and the supply and demand of rice, the markets also were strongly influenced by the emotions of traders.
A daily candlestick charts shows the security’s open, high, low, and close price for the day. The candlestick’s wide or rectangle part is called the “real body” which shows the link between opening and closing prices.
This real body shows the price range between the open and close of that day’s trading.
When the real body is filled, black or red then it means that the close is lower than the open and is known as the bearish candle. It shows that the prices opened, the bears pushed the prices down and closed lower than the opening price.
If the real body is empty, white or green then it means that the close was higher than the open known as the bullish candle. It shows that the prices opened, the bulls pushed the prices up and closed higher than the opening price.
The thin vertical lines above and below the real body is knowns as the wicks or shadows which represents the high and low prices of the trading session.
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1- Hammer Candle
Hammer is a single candlestick pattern that is formed at the end of a downtrend and signals a bullish reversal.
The real body of this candle is small and is located at the top with a lower shadow which should be more than twice the real body. This candlestick chart pattern has no or little upper shadow.
The psychology behind this candle formation is that the prices opened, and sellers pushed down the prices.
Suddenly the buyers came into the market and pushed the prices up and closed the trading session more than the opening price.
This resulted in the formation of bullish pattern and signifies that buyers are back in the market and downtrend may end.
Traders can enter a long position if next day a bullish candle is formed and can place a stop-loss at the low of Hammer.
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2- Hanging Man
Hanging Man is a single candlestick pattern which is formed at the end of an uptrend and signals bearish reversal.
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.
Suddenly the buyers came into the market and pushed the prices up but were unsuccessful in doing so as the prices closed below the opening price.
This resulted in the formation of bearish pattern and signifies that seller are back in the market and uptrend may end.
Traders can enter a short position if next day a bearish candle is formed and can place a stop-loss at the high of Hanging Man.
-----------------------------------------
3- Three White Soldiers
The Three White Soldiers is a multiple candlestick pattern that is formed after a downtrend indicating a bullish reversal.
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.
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4- Inverted Hammer
An Inverted Hammer is formed at the end of the downtrend and gives a bullish reversal signal.
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.
This pattern is formed when the opening and closing prices are near to each other and the upper shadow should be more than twice the real body.
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5- Piercing Pattern
Piercing pattern is a multiple candlestick chart pattern formed after a downtrend indicating a bullish reversal.
Two candles form it, the first candle being a bearish candle which indicates the continuation of the downtrend.
The second candle is a bullish candle which opens the gap down but closes more than 50% of the real body of the previous candle, which shows that the bulls are back in the market and a bullish reversal is going to take place.
Traders can enter a long position if the next day a bullish candle is formed and can place a stop-loss at the low of the second candle.
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6- White Marubozu
The White Marubozu is a single candlestick pattern that is formed after a downtrend indicating a bullish reversal.
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.
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