Candlestick Chart

Candlestick Chart: A chart that displays price movements in the form of candle-like shapes. Candelstick charts are one of the technical analyst’s main tools of trade. Each candle displays the opening and closing prices of an asset within the time period covered by that candle. Rising (bull) candles are usually green, with the bottom of the candle’s body showing the opening price of the period, and the top its closing price. Falling (bear) candles are usually red and show the opening price at the top and the closing price at the bottom. Small lines above and below the opening/closing prices show the maximum and minimum prices registered during the relevant time period.

Japanese Candlesticks

Japanese Candlesticks - text

Japanese candlesticks

In this tutorial we will be looking at some single candlestick formations patterns and how they can help you identify potential entry and exit points.

Candlesticks can be used in any timeframe and inform us of the open price, the close price and the high and low of the instrument we are trading in the timeframe selected

LONG CANDLESTICKS VS SHORT CANDLESTICKS

Long green candlesticks show strong buying pressure and a significant move to the upside.

The longer the green candlestick, the further the close price is above the open price

This indicates that the prices increased considerably from open to close and buyers were in control during this period.

Long red candlesticks show strong selling pressure.

The longer the red candlestick, the further the close price is below the open price.

This indicates that prices fell considerably from the open to close and the sellers were in control during this period.

Candlesticks with short bodies indicate that there was very little buying or selling activity in the timeframe selected or the buyers and sellers effectively cancelled each other out.

Now, let’s have a look at some basic single candlestick formations and what they indicate.

First off is called Marubozu

A candlestick formation with no shadow at the top or tail of the candlesticks body is called a marubozu

The high and low is the open and close price.

A green Marubozu is a very bullish candle as it shows that buyers are in control indicating a bullish continuation or a bullish reversal pattern.

A red marubozu is a very bearish candlestick and shows that the sellers are in control indicating a bearish continuation or a bearish reversal.

Ok Let’s look at  Spinning Tops

Candlesticks with a long upper shadow, a long lower shadow and a small body are called spinning tops.

This pattern indicates indecision between buyers and sellers.

The small real body indicates little movement from open to close and the shadows indicate that neither  the buyers or sellers gained control of the market in that period.

If a spinning top forms during an uptrend, this usually means that there are not many buyers left in the market and a possible reversal in price direction could occur.

If the spinning tops form during a down trend, this usually means there are not many sellers left in the market and a possible reversal towards the upside could occur.

Let’s look at Dojis

Similar to a spinning top, a doji candlestick has the same open and close price or their bodies are extremely short.

They come in a variety of shapes and sizes but generally mean the same thing…that the market is consolidating, indicating a possible reversal in the current trend.

Our final single candlestick formations are called Hammer & Hanging Man ,

So lets look at what they are and what they can indicate

 

 

Hammer and Hanging Man

The hammer and hanging man look the same but are different in their implication based on the previous price action.

Both have long, lower, tailing shadows, little to no upper shadow, and a small green or red body.

Lets look at the hammer first

A hammer is formed after a downtrend and can signify a bullish reversal. The candlestick can have either a red or green body

A hanging man is formed after an uptrend and can signify a bearish reversal.

The candlestick can also,, have either a red or green body

Like the hammer, the next candlestick to form is crucial in deciding whether a reversal is occurring.

Therefore we look for a preceding red (bearish) candlestick to develop after the hammer before considering entering a sell position.

It is important to remember that you should look at candlestick formations as your only reason to enter or exit a trade.

Always look for additional confirmation using other technical tools. The more confirmation you have the higher the probability of a successful trade