Learn Price Action - Stage 3
Candlesticks
Candlesticks are a type of chart that is used to display the high, low, open, and close prices of a security, derivative, or currency over a specific time period. They are typically used to visualize the price movements of financial instruments, such as stocks, futures, or currencies, and are often used in technical analysis.
Each candlestick on a chart represents a specific time period, such as a day, week, or month. The vertical line on the candlestick represents the range of prices that the security traded during the time period, with the top of the line representing the highest price and the bottom of the line representing the lowest price. The horizontal lines on the candlestick, known as the "wicks," show the opening and closing prices for the time period.
If the closing price is higher than the opening price, the candlestick is typically colored green or white, indicating that the price went up during the time period. If the closing price is lower than the opening price, the candlestick is typically colored red or black, indicating that the price went down during the time period.
Candlestick charts are a popular way to visualize price movements because they can provide a lot of information in a compact, easy-to-read format. They are often used by traders and investors to identify patterns and trends in price movements, which can help them make informed decisions about buying and selling securities.
Bullish Candlestick patterns
Bullish candlestick patterns occur when the price of an asset closes higher than its opening price, and they are typically interpreted as a sign of bullish sentiment in the market.
Hammer: This pattern is a bullish reversal pattern that occurs when the price of a security falls significantly during the day, but then rallies to close near the opening price. It is characterized by a small body with a long lower wick and a small or absent upper wick.
Characteristics of hammer pattern:The small body of the candlestick represents a period of indecision in the market.
The long lower wick represents a significant decline in the price of the security during the day, but the rally to close near the opening price suggests that the selling pressure was absorbed by buying pressure.
The upper wick, if present, should be short or absent.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Inverted hammer: This pattern is a bullish reversal pattern that is similar to a shooting star, but occurs at the bottom of a downtrend. It is characterized by a small body with a long upper wick and a small or absent lower wick.
Characteristics of inverted hammer pattern:The small body of the candlestick represents a period of indecision in the market.
The long upper wick represents a significant rally in the price of the security during the day, but the decline to close near the opening price suggests that the buying pressure was absorbed by selling pressure.
The lower wick, if present, should be short or absent.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bullish engulfing pattern: This pattern occurs when a small bearish candlestick is followed by a large bullish candlestick that completely "engulfs" the previous day's candlestick. It is a bullish pattern that suggests the price of the security is likely to continue rising.
Characteristics of bullish engulfing pattern:The small bearish candlestick represents a downtrend or period of indecision in the market.
The large bullish candlestick represents a strong buying pressure that drives the price of the security up.
The body of the large bullish candlestick should completely cover the body of the small bearish candlestick.
The close of the large bullish candlestick should be higher than the open of the small bearish candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bullish harami: This pattern occurs when a small bullish candlestick is contained within the body of a large bearish candlestick. It is a bullish reversal pattern that suggests the price of the security may be about to reverse and start rising.
Characteristics of bullish harami pattern:The large bearish candlestick represents a downtrend or period of selling pressure in the market.
The small bullish candlestick represents a period of indecision or a potential reversal in the market.
The body of the small bullish candlestick should be contained within the body of the large bearish candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bullish piercing pattern: This pattern occurs when a bullish candlestick follows a large bearish candlestick and the close of the bullish candlestick is above the midpoint of the large bearish candlestick. It is a bullish reversal pattern that suggests the price of the security may be about to reverse and start rising.
Characteristics of bullish piercing pattern:The large bearish candlestick represents a downtrend or period of selling pressure in the market.
The bullish candlestick represents a period of buying pressure or a potential reversal in the market.
The close of the bullish candlestick should be above the midpoint of the large bearish candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bullish morning star: This pattern is a bullish reversal pattern that consists of three candlesticks: a large bearish candlestick, a gap down small bullish or bearish candlestick, and a large bullish candlestick. It suggests that the price of the security may be about to reverse and start rising.
Characteristics of bullish morning star pattern:The large bearish candlestick represents a downtrend or period of selling pressure in the market.
The small bullish or bearish candlestick represents a period of indecision or a potential reversal in the market.
The large bullish candlestick represents a strong buying pressure that drives the price of the security up.
The close of the large bullish candlestick should be near or above mid range of the large bearish candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bullish abandoned baby: This pattern is a bullish reversal pattern that consists of three candlesticks: a large bearish candlestick, a doji (a candlestick with a small body and equal upper and lower wicks), and a large bullish candlestick. It suggests that the price of the security may be about to reverse and start rising.
Characteristics of bullish abandoned baby pattern:The large bearish candlestick represents a downtrend or period of selling pressure in the market.
The doji represents a period of indecision or a potential reversal in the market.
The large bullish candlestick represents a strong buying pressure that drives the price of the security up.
The close of the large bullish candlestick should be near or above mid range of the large bearish candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Three white soldiers: This pattern is a bullish reversal pattern that consists of three long bullish candlesticks that follow a downtrend. It suggests that the price of the security may be about to reverse and start rising.
Characteristics of three white soldiers pattern:The three long bullish candlesticks represent a strong buying pressure that drives the price of the security up.
The bodies of the candlesticks should be long, with small or absent upper and lower wicks.
Open and close of each candlestick should be above the open and close of previous candlestick.
The pattern is more reliable if it occurs after a downtrend or at a support level.
The pattern is less reliable if it occurs in the middle of an uptrend or at a resistance level.
Bearish Candlestick patterns
Hanging man: This pattern is a bearish reversal pattern that is similar to a hammer, but occurs at the top of an uptrend. It is characterized by a small body with a long lower wick and a small or absent upper wick.
Characteristics of hanging man pattern:The small body of the candlestick represents a period of indecision in the market.
The long lower wick represents a significant decline in the price of the security during the day, but the rally to close near the opening price suggests that the selling pressure was absorbed by buying pressure.
The upper wick, if present, should be short or absent.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Shooting star: This pattern is a bearish reversal pattern that occurs when the price of a security rises significantly during the day, but then falls to close near the opening price. It is characterized by a small body with a long upper wick and a small or absent lower wick.
Characteristics of shooting star pattern:The small body of the candlestick represents a period of indecision in the market.
The long upper wick represents a significant rally in the price of the security during the day, but the decline to close near the opening price suggests that the buying pressure was absorbed by selling pressure.
The lower wick, if present, should be short or absent.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Bearish engulfing pattern: This pattern occurs when a small bullish candlestick is followed by a large bearish candlestick that completely "engulfs" the previous day's candlestick. It is a bearish pattern that suggests the price of the security is likely to continue falling.
Characteristics of bearish engulfing pattern:The small bullish candlestick represents an uptrend or period of indecision in the market.
The large bearish candlestick represents a strong selling pressure that drives the price of the security down.
The body of the large bearish candlestick should completely cover the body of the small bullish candlestick.
The close of the large bearish candlestick should be lower than the open of the small bullish candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Bearish harami: This pattern occurs when a small bearish candlestick is contained within the body of a large bullish candlestick. It is a bearish reversal pattern that suggests the price of the security may be about to reverse and start falling.
Characteristics of bearish harami pattern:The large bullish candlestick represents an uptrend or period of buying pressure in the market.
The small bearish candlestick represents a period of indecision or a potential reversal in the market.
The body of the small bearish candlestick should be contained within the body of the large bullish candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Bearish dark cloud cover: This pattern occurs when a small bearish candlestick follows a large bullish candlestick and the close of the bearish candlestick is below the midpoint of the large bullish candlestick. It is a bearish reversal pattern that suggests the price of the security may be about to reverse and start falling.
Characteristics of bearish dark cloud cover pattern:The small bullish candlestick represents an uptrend or period of buying pressure in the market.
The large bearish candlestick represents a period of selling pressure or a potential reversal in the market.
The close of the large bearish candlestick should be below the midpoint of the small bullish candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Bearish evening star: This pattern is a bearish reversal pattern that consists of three candlesticks: a large bullish candlestick, a small bullish or bearish candlestick, and a large bearish candlestick. It suggests that the price of the security may be about to reverse and start falling.
Characteristics of bearish evening star pattern:The large bullish candlestick represents an uptrend or period of buying pressure in the market.
The small bullish or bearish candlestick represents a period of indecision or a potential reversal in the market.
The large bearish candlestick represents a strong selling pressure that drives the price of the security down.
The close of the large bearish candlestick should be near or lower than the mid range of the large bullish candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Bearish abandoned baby: This pattern is a bearish reversal pattern that consists of three candlesticks: a large bullish candlestick, a doji, and a large bearish candlestick. It suggests that the price of the security may be about to reverse and start falling.
Characteristics of bearish abandoned baby pattern:The large bullish candlestick represents an uptrend or period of buying pressure in the market.
The doji represents a period of indecision or a potential reversal in the market.
The large bearish candlestick represents a strong selling pressure that drives the price of the security down.
The close of the large bearish candlestick should be near or lower than the mid range of the large bullish candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
Three black crows: This pattern is a bearish reversal pattern that consists of three long bearish candlesticks that follow an uptrend. It suggests that the price of the security may be about to reverse and start falling.
Characteristics of three black crows pattern:The three long bearish candlesticks represent a strong selling pressure that drives the price of the security down.
The bodies of the candlesticks should be long, with small or absent upper and lower wicks.
Open and close of each candlestick should be below the open and close of the previous candlestick.
The pattern is more reliable if it occurs after an uptrend or at a resistance level.
The pattern is less reliable if it occurs in the middle of a downtrend or at a support level.
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