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Candlestick patterns are just like the bar chart used to know movements in price, how much flexibility is it flexibility and the currency of it. It gives the idea how to invest money and how to save yourself from disaster. Candlestick patterns are mostly used in technical analysis.
Candlestick was produced in Japan in 1850 by Rice traders. By using candlestick charts rice traders used to predict the price of rice for the future. Every candlestick is of a different time interval which can be of one minute, one day, one week and one month as well.
Candlestick patterns determine four prices at a time which are opening price, closing price, highest price and lowest price Candlestick has three parts which are upper shadow, body and lower shadow. From which the upper shadow gives an idea of high price and the lower shadow gives information about lower prices. Body gives idea of opening and closing price.
TYPES OF CANDLESTICK PATTERN
There are two types of candlestick pattern available:
Bullish Candle: Bullish candles tell investors that the market is now about to go in an upward trend after getting a high down trend.
Total seven types of Bullish Candle are available which are mentioned below:
- Inverted Hammer
- Bullish Engulfing
- Piercing Signal
- Bullish Harami
- Morning Star
- Bullish Kicker
Bearish Candle: Bearish candle interpret stocker that now trend might change from upward trend to downward trend and there could be high changes in it. In Bearish Candle as well there are total of seven candle are available unlike Bullish Candle, which are mentioned below:
- Hanging Man
- Shooting Star
- Bearish Engulfing
- Dark Cloud Cover
- Bearish Harami
- Evening Star
- Bearish Kicker
Now we will discuss every Bullish candle in detail and you will get the idea of how to analyze it and how to use it for prof
1) HAMMER CANDLE
The size of the lower shadow body length is double than the body length. The formation of Hammer is in the downtrend of the chart. Hammer candles could be red and green as well. It will be red if it is open in upper and low at downwards and in the middle of that there is close. Similarly in Green it will be totally the reverse of Red. You can interpret the stock like if it is downward then it could go on the upper side. So once Hammer is closed you can buy the stocks and make profit.
Inverted Hammer has the same concept but it is just the opposite of Hammer Candle. Like shadow length will be on the upper side so it will be called upper shadow length but definition is same like upper shadow length is twice than the size of body length. It also could be red and green as well. In green it will be low at upper shadow length and open at body length.
While in red it is high at shadow length and close at body length and in the middle it is open. Interpretation of the inverted hammer is that stocks could be reversed and can go upside or downside like wisely. When it is high you can buy the stocks.
In bullish engulfing as well there will be two colors of candle one is green and the other is red. Red candle is the previous day’s candle and the green one is the next day’s candle. It says engulfing because the green candle (the next day one) is totally engulfing the previous day one means it covers the red candle. The green candle is open at below and the red candle is close at below and vice versa happens on the upper part of candles. The signal of both of the candles is called bullish engulfing.
In this candle as well green and red are available. Red is the previous day candle and green is
the next day which is opening below the low of red candle. The close of the green candle is in
the middle of the red candle. We will observe the two day signals for reversal and we can
predict that it can go upward if it is downward previously. Next day, the green candle’s opening
was below the lower stock trend of the previous day’s red candle.
5) BULLISH HARAMI
You can think of a positive trend after getting signals of Bullish Harami. First day’s candle is Red
and the next day’s candle is green. The body of the red candle will engulf the open and close of
the green candle. The previous day’s candle did not cross the trend of the next day.
6) MORNING STAR
It is one of the most important signals in stock trends. The signal formation of the morning star will
be the reversal signal of three days. In this, you have to wait for three days. On the first day the
signal will be the long dark body of a red candle. On the second day there will be negligible
movement in stock trends.
The point where it will open and close nearby and at the
end it will be close to open so it does note the rear moment in trends. On the third day green
candles will form but not lengthy like red ones. High and low of the green candle is included in
the opening and closing of the red candle. If it breaks the high of all three signals then you can think
of a trend going upward. You can maintain stop loss at the low of the second day.
7) BULLISH KICKER
At the end of the downward trend Bullish Kicker will be seen at the bottom. In Bullish kicker as
well there are two candles green and red. There is no high and low in both of the candles, there
is open high and low is the close.
On the next day, the green candle will be placed on the upper
side of the red candle. In a green candle, the low is it’s open, and the high is the closed one.
A combination of two days’ signals is called a Bullish Kicker. On the break of high of Green candle,
you can take entry for betterment. At the previous day’s candle’s low, you can stop.
2) BEARISH CANDLES
After discussing everything about bullish candles you get the knowledge of how it works. Now
Bearish candles are opposite to Bullish candles and there are no major changes in the Bearish
candle. Below are all descriptions of Bearish candles. Let’s have a look at it.
1) HANGING MAN
Hanging Man is very similar to the Hammer of Bullish Candle. The difference is that in Hammer the
signals were situated at the bottom and in Hanging Man the signals were at the top as
the breakdown point. Just like Hammer, in Hanging Man the lower shadow length is double the
body length. It is only one day of observation and you can predict the results. There will be only
one signal either it will be red or green. You can stop investing when it is high and you have to
sell the stocks when it is low.
2) SHOOTING STAR
It is the opposite of an inverted hammer. The difference is in the inverted hammer the trend was
downward and in the shooting star, the trend was upward. It could be a red or green candle. The
body length is at the bottom and shadow length is at the upper level and it is twice the body
length. At the high of any candle you have to stop investing and sell the stocks at the low of
the candle and that could be open or closed as well.
3) BEARISH ENGULFING
It is also just the opposite of Bullish Engulfing. On the first day the green candle became and
on the next day red candle became. The red candle became so long that it covered the whole green
candle and it is called engulfing. If you break the low of the red candle on the second day, at that
time you can sell the stock and at the high, you can stop losing.
4) DARK CLOUD COVER
Just like every candle it is opposite to Piercing signals. The trend is upward. On the very first
day the green candle is there and the next day above the green, the red candle is situated like the
close of the red candle is in the middle of the green candle. At the high of the red candle, you can
stop investing and at the low of the green candle, you can sell the stocks.
5) BEARISH HARAMI
Bearish harami is exactly opposite the Bullish harami. We have to observe two-day reversal
signals. On the first day a green candle is observed which is lengthy and the next day a red
candle is observed beside the green candle. Green candles are situated like green candles
engulfing whole red candles with high and low red candles. At the high of the red candle, you can
stop investing in stocks and at the low of the green, you can sell the stocks.
7) EVENING STAR
The evening star is just the opposite of the morning star. It can be observed in upward trends. On
the very first day, the green candle is observed which is bigger in length than the red candle. On
the second day, the candle is called an indecision candle. In an indecision candle, there is no
major movement noted and the price of open and close is almost the same and no major
changes are happening. On the third day, there is a small red candle. On the low of the green
candle, you can sell the stocks and on the high of the indecision candle you can stop investing and loss
can be prevented.
8) BEARISH KICKER
It is exactly the opposite of a Bullish kicker. On the first day, the green long candle is there and is
becoming a Bullish moribund. It is not high and low and only has a body. Its close is high and
open is low. On the second day, a red candle is present with a little gap. The red candle’s high is
open and the close is low. The red candle is called Bearish moribund. At the high of the bullish
moribund, you have to stop investing in stock, and at the low of the bearish moribund, you can sell
USES OF CANDLESTICK PATTERN
Candlestick patterns have a lot of uses on their own. The knowledge of candlestick patterns can
be helpful in many sectors. Some of the uses are mentioned below:
- Candlestick charts are used by investors who want to monitor each and every movement
- of currency, they have invested for.
- The candlestick pattern reflects the price and amount determined by past records of prices.
- You can definitely get good and accurate information of one stock by reading the
- candlestick pattern.