Different Types of Candlesticks
History
Candlestick type of charting has been in use since the 17th century. Japanese traders used candlestick in the rice markets.
It is not difficult to understand why candlesticks are popular among traders. Each bar has more information packed into it than the conventional bar chart or line chart.
The bar captures the four important data points for the given period namely open, high, low, and close. More importantly, they tell us the strength of the market movement for the day and foretell the possible movement for the next day.
Big Candles
Dojis
a tug of war that neither the bulls
nor bears are winning. In the case of an uptrend, the
bulls have by definition won previous battles
because prices have moved higher.
Now, the outcome of the latest skirmish is in doubt. After a long
a downtrend, the opposite is true.
The bears have been victorious in previous battles, forcing prices
down. Now the bulls have found the courage to buy, and the tide may be ready to turn.
A “long-legged” Doji is a far more dramatic candle.
It says that prices moved far higher on the
day, but then profit-taking kicked in.
Typically, a very large upper shadow is left. A close below the midpoint of the candle shows a lot of weakness.
Here’s an example of a long-legged Doji.
Gravestone & Dragonfly
Depicts a day on which prices opened high, sold off, and then returned to the opening price. Dragonflies are fairly infrequent.
When they do occur, however, they often resolve bullishly
“Gravestone Doji”
As the name implies, is probably the most ominous candle of all, on that
day, price rallied, but could not stand the altitude they achieved. By the end of the day. They came back and closed at the same level. Here ’s an example of a gravestone Doji
Shooting Star
In order for the Shooting Star signal to be valid, the following conditions must exist:
• The stock must have been in a definite uptrend before this signal occurs. This can be visually seen on the chart.
• The Upper shadow must be at least twice the size of the body.
• The day after the Shooting Star is formed, one should witness continued selling.
• There should be no lower shadow or a very small lower shadow. The colour of the body does not matter
Hammer
Also called The inverted hammer is a type of candlestick pattern found after a downtrend and is usually taken to be a trend-reversal signal. The inverted hammer looks like an upside-down version of the Hammer candlestick pattern.
HAMMER BULLISH
The hammer candlestick appears at the bottom of a downtrend and signals a bullish reversal. The hammer candle has a small body, little to no upper wick, and a long lower wick – resembling a ‘Hammer’.
The pattern indicates that the price dropped to new lows, but subsequent buying pressure forced the price to close higher, hinting at a potential reversal. The extended lower wick is indicative of the rejection of lower prices.
Morning Doji Star / Evening Doji Star
On the first day, there is a large dark candle. The middle day is not a perfect
star, because there is a small lower shadow, but the upper shadow on top of a small real body gives it star quality.
The third candle is a large candle that completes the reversal.
Not how the third candle recovered nearly to the highs of the first
day and occurred on a strong volume.
In order for the Morning Star signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs.
This can be visually seen on the chart.
• The first day of the signal must be a long dark body. The second day must be a day of
indecision.
The third day should be a long white candle reaching at least halfway into the body
of the first day’s dark candle.
The evening star pattern
occurs during a sustained uptrend. On the first day, we see a candle with a
long white body. Everything looks normal and the bulls appear to have full control of the stock. Tn the
second day, however, a star candle occurs.
For this to be a valid evening star pattern, the stock must
gap higher on the day of the star. The star can be either Green or red
A star candle has a small real
body and often contains a large upper shadow. On the third day,
a candle with a red real body
emerges. This candle retreats substantially into the real body of the first day.
The pattern is made more powerful if there is a gap between the second and third day’s candles. However, this gap is
unusual, particularly when it comes to equity trading.
The further this third candle retreats into the
the real body of the first day’s candle, the more powerful the reversal signal.
Bullish Harami / Bearish Harami
In order for the Bullish Harami signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs. This can be
visually seen on the chart.
• The second day of the signal should be a Green candle opening above the
Close of the previous
day and closing below the Open of the previous day’s Red candel
In order for the Bearish Harami signal to be valid, the following conditions must exist:
• The stock must have been in a definite uptrend before this signal occurs
. This can be visuallyseen on the chart.
• The second day of the signal should be a dark candle
opening below the Close of the previous
day and closing above the Open of the previous day’s Green candle .
Engulfing Bullish / Engulfing Bearish
• The stock must have been in a definite downtrend before this signal occurs.
This can be visually seen on the chart.
• The second day of the signal should be a Green candle opening
below the Close of the previous
day and closing above the Open of the previous day’s Red candle
In order for the Bullish Engulfing signal to be valid, the following conditions must exist:
• The stock must have been in a definite downtrend before this signal occurs.
This can be visually seen on the chart.
• The second day of the signal should be a Green candle
opening below the Close of the previous
day and closing above the Open of the previous day’s Red candle.