Candlesticks

Candlestick chart

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Candlestick chart of EURUSD

A candlestick chart is a style of bar-chart used primarily to describe price movements of a security (finance), derivative, or currency over a specified time.

It is a chart where each bar represents the range of price movement over a specified time interval. It is the most commonly used in technical analysis of equity and currency price patterns.


History

Candlestick charts are allegedly said to have been developed in the 18th century, by a Japanese rice trader Homma Munehisa. The charts gave an overview of open, high, low, and close market prices over a specified time period. This style of charting is very popular due to the level of ease in reading and understanding the data provided by the charts. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future price movements, depending on the patterns formed.

Candlesticks

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The basic candlestick

Candlestick layout

Candlesticks are composed of the body (colors are definable), and an upper and a lower Wick (Shadow). The wick indicates the highest and lowest price during the specified time interval represented. The body indicates the opening and closing trade prices. If the price closed higher than it opened, it represents a Bullish Candlestick. If the price closed lower than it opened, it represents a Bearish Candlestick. There are many different candlestick patterns and shapes, it is possible not have either a body or a wick.

To emphasize price movements at a glance it is generally understood that positive colors are chosen for Bullish candlesticks i.e. Green – representing money. Conversely negative colors for Bearish Candlesticks i.e. Red – representing Debt. However the colour choice is usually chosen by the investor.

Candlestick simple patterns

There are many forms of candlestick and subsequently, chart patterns produced by combinations of these candles. These patterns are used by investors to predict the next Market Movement.

  1. Bullish candlestick – indicates an uptrend movement the longer the body, the more significant the price increase.
  2. Bearish candlestick – indicates downtrend movement.
  3. Long lower shadowbullish signal, the lower wick should be at least the body’s size or longer; the longer the lower wick, the  potentially more reliable the signal
  4. Long upper shadowbearish signal the upper wick should be at least the body’s size or longer.
  5. Hammer – a bullish pattern during a downtrend (long lower wick and small or no body)
  6. Shaven head – a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick);
  7. Hanging man – bearish pattern during an uptrend (long lower wick, small or no body; wick has a multiple length of the body.
  8. Inverted hammer – indicates bottom reversal, however confirmation must be obtained from next trade (may be either Bullish or Bearish)
  9. Shaven bottom – indicates a bottom reversal, however confirmation must be obtained from next trade (no lower wick)
  10. Shooting star – a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)
  11. Spinning top – neutral pattern, meaningful in combination with other candlestick patterns
  12. Spinning top – neutral pattern, meaningful in combination with other candlestick patterns
  13. Doji – neutral pattern, meaningful in combination with other candlestick patterns
  14. Long legged doji – indicates a top reversal
  15. Dragonfly doji – indicates trend reversal (no upper wick, long lower wick)
  16. Gravestone doji – indicates trend reversal (no lower wick, long upper wick)
  17. Marubozu – dominant bullish trades, continued bullish trend (no upper, or lower wick)
  18. Marubozu – dominant bearish trades, continued bearish trend (no upper, or lower wick)

Complex Patterns

Visit our “candlestick Patterns” page.