Candlestick charts are used by traders to determine possible price movement based on past patterns that help forecast the short-term direction of the price. They show four price points (open, close, high, and low) throughout the period of time the trader specifies.Trading is often dictated by emotion
Candlestick Components
Daily candlestick shows the market’s open, high, low, and close price for the day
- Has a wide part called the “real body” which represents the price range between the open and close of that day’s trading
- When the real body is filled in or black, it means the close was lower than the open
- If it is empty or the whole body is black, the close is higher
- Traders can alter the colors in their trading platform
Bearish Engulfing Pattern
A bearish engulfing pattern develops in an uptrend when sellers outnumber buyers
Bearish Evening Star
This is a topping pattern. It is identified by the last candle in the pattern opening below the previous day’s small real body.
Bullish Harami Cross
A bullish harami cross occurs in a downtrend, where a down candle is followed by a doji.
Candlestick vs. Bar Charts
Bar charts and candlestick charts show the same information, just in a different way.
- Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of bar charts.
- More visual, due to the color coding of the price bars and thicker real bodies.
Bullish Rising Three
This pattern starts out with a “long white day” followed by a “short white day,” followed by small real bodies moving the price lower, but staying within price range of the long white day.
- The pattern shows that even though the price is falling for three straight days, a new low is not seen, and the bull traders prepare for the next move up.
Basic Candlestick Patterns
Candlesticks are created by up and down movements in the price.
Bearish Harami Cross
Occurs in an uptrend, where an up candle is followed by a doji-the session where the candlestick has a virtually equal open and close.
Bearish Falling Three
The pattern starts out with a strong down day followed by three small real bodies that make upward progress but stay within the range of the first big down day. The pattern completes when the fifth day makes another large downward move. It shows that sellers are back in control and that the price could head lower.
Bottom Line
Investors’ emotions surrounding the trading of an asset have a major impact on that asset’s movement.
Bullish Engulfing Pattern
An engulfing pattern on the bullish side of the market takes place when buyers outpace sellers
Bearish Harami
A bearish harami is a small real body (red) completely inside the previous day’s real body.
Bullish Harami
The bullish harami is the opposite of the upside down bearish harami. A downtrend is in play, and a small real body (green) occurs inside the large real body of the previous day. This tells the technician that the trend is pausing. If it is followed by another up day, more upside could be forthcoming.
