Understanding Candlestick Chart Patterns

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Contents

Understanding Basic Candlestick Charts

Candlestick charts originated in Japan over 100 years before the West developed the bar and point-and-figure charts. In the 1700s, a Japanese man named Homma discovered that, while there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. 

Candlesticks show that emotion by visually representing the size of price moves with different colors. Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price.

Key Takeaways

  • Candlestick charts are used by traders to determine possible price movement based on past patterns.
  • Candlesticks are useful when trading as they show four price points (open, close, high, and low) throughout the period of time the trader specifies.
  • Many algorithms are based on the same price information shown in candlestick charts.
  • Trading is often dictated by emotion, which can be read in candlestick charts.

Candlestick Components

Just like a bar chart, a daily candlestick shows the market’s open, high, low, and close price for the day. The candlestick has a wide part, which is called the “real body.”

This real body 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 the real body is empty, it means the close was higher than the open.

Traders can alter these colors in their trading platform. For example, a down candle is often shaded red instead of black, and up candles are often shaded green instead of white.

Candlestick vs. Bar Charts

Just above and below the real body are the “shadows” or “wicks.” The shadows show the high and low prices of that day’s trading. If the upper shadow on a down candle is short, it indicates that the open that day was near the high of the day.

A short upper shadow on an up day dictates that the close was near the high. The relationship between the days open, high, low, and close determines the look of the daily candlestick. Real bodies can be long or short and black or white. Shadows can be long or short.

Bar charts and candlestick charts show the same information, just in a different way. Candlestick charts are more visual, due to the color coding of the price bars and thicker real bodies, which are better at highlighting the difference between the open and the close.

The above chart shows the same exchange-traded fund (ETF) over the same time period. The lower chart uses colored bars, while the upper uses colored candlesticks. Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of bar charts.

Basic Candlestick Patterns

Candlesticks are created by up and down movements in the price. While these price movements sometimes appear random, at other times they form patterns that traders use for analysis or trading purposes. There are many candlestick patterns. Here a sampling to get you started.

Patterns are separated into bullish and bearish. Bullish patterns indicate that the price is likely to rise, while bearish patterns indicate that the price is likely to fall. No pattern works all the time, as candlestick patterns represent tendencies in price movement, not guarantees.

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Bearish Engulfing Pattern

A bearish engulfing pattern develops in an uptrend when sellers outnumber buyers. This action is reflected by a long red real body engulfing a small green real body. The pattern indicates that sellers are back in control and that the price could continue to decline.

Bullish Engulfing Pattern

An engulfing pattern on the bullish side of the market takes place when buyers outpace sellers. This is reflected in the chart by a long green real body engulfing a small red real body. With bulls having established some control, the price could head higher.

Bearish Evening Star

An evening star is a topping pattern. It is identified by the last candle in the pattern opening below the previous day’s small real body. The small real body can be either red or green. The last candle closes deep into the real body of the candle two days prior. The pattern shows a stalling of the buyers and then the sellers taking control. More selling could develop.

Bearish Harami

A bearish harami is a small real body (red) completely inside the previous day’s real body. This is not so much a pattern to act on, but it could be one to watch. The pattern shows indecision on the part of the buyers. If the price continues higher afterward, all may still be well with the uptrend, but a down candle following this pattern indicates a further slide.

Bullish Harami

The bullish harami is the opposite or the upside down bearish harami. A downtrend is in play, and a small real body (green) occurs inside the large real body (red) 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.

Bearish Harami Cross

A 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. The doji is within the real body of the prior session. The implications are the same as the bearish harami.

Bullish Harami Cross

A bullish harami cross occurs in a downtrend, where a down candle is followed by a doji. The doji is within the real body of the prior session. The implications are the same as the bullish harami.

Let’s look at a few more patterns in black and white, which are also common colors for candlestick charts.

Bullish Rising Three

This pattern starts out with what is called a “long white day.” Then, on the second, third, and fourth trading sessions, small real bodies move the price lower, but they still stay within the price range of the long white day (day one in the pattern). The fifth and last day of the pattern is another long white day.

Even though the pattern shows us that the price is falling for three straight days, a new low is not seen, and the bull traders prepare for the next move up.

A slight variation of this pattern is when the second day gaps up slightly following the first long up day. Everything else about the pattern is the same; it just looks a little different. When that variation occurs, it’s called a “bullish mat hold.”

Bearish Falling Three

The pattern starts out with a strong down day. This is 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.

The Bottom Line

As Japanese rice traders discovered centuries ago, investors’ emotions surrounding the trading of an asset have a major impact on that asset’s movement. Candlesticks help traders to gauge the emotions surrounding a stock, or other assets, helping them make better predictions about where that stock might be headed.

How to Read a Candlestick Chart

Candlestick charts have enjoyed continued use among traders because of the wide range of trading information they offer, along with a design that makes them easy to read and interpret.

This centuries-old charting style was developed in the rice markets of Japan. The style’s name refers to the way each time period is represented by a rectangle with lines coming out of the top and the bottom. This shape resembles a candle with a wick. The Japanese market watchers who used this style referred to the wick-like lines as shadows.

On the chart, each candlestick indicates the open, high, low, and close price for the time frame the trader has chosen.   For example, if the trader set the time frame to five minutes, a new candlestick will be created every five minutes. For an intraday chart like this one, the open and close prices are those for the beginning and end of the five-minute period, not the trading session.

Candlesticks also show the current price as they’re forming, whether the price moved up or down over the time frame, and the price range the asset covered in that time. 

Open Price

The top or bottom of the candle body will indicate the open price, depending on whether the asset moves higher or lower during the five-minute period. If the price trends up, the candlestick is often either green or white and the open price is at the bottom. If the price trends down, the candlestick is often either red or black and the open price is at the top.

High Price

The high price during the candlestick period is indicated by the top of the shadow or tail above the body. If the open or close was the highest price, then there will be no upper shadow.

Low Price

The low is indicated by the bottom of the shadow or tail below the body. If the open or close was the lowest price, then there will be no lower shadow. 

Close Price

The close is the last price traded during the candlestick, indicated by either the top (for a green or white candle) or bottom (for a red or black candle) of the body. 

As a candle forms, it constantly changes as the price moves. The open stays the same, but until the candle is completed, the high and low prices are changing. The color may also change as a candlestick forms. It may go from green to red, for example, if the current price was above the open price but then drops below it.

When the time period for the candle ends, the last price is the close price, the candle is completed, and a new candle begins forming.

Price Direction

You can see the direction the price moved during the time frame of the candle by the color and positioning of the candlestick. If the candlestick is green, the price closed above where it opened and this candle will be located above and to the right of the previous one, unless it’s shorter and of a different color than the previous candle. If the candlestick is red, the price closed below where it opened and this candle will be located below and to the right of the previous one, again unless it’s shorter and of a different color than the previous candle. 

Price Range

The distance between the top of the upper shadow and the bottom of the lower shadow is the range the price moved through during the time frame of the candlestick.   The range is calculated by subtracting the low price from the high price.

Interpreting Patterns

You can practice reading candlestick charts by opening a demo trading account or playing around with candlesticks on free web-based charting platforms. Set the chart type to candlestick and select a one-minute time frame so you’ll have lots of candles to look at.

Once you understand what each candle is indicating, you can start looking for trading opportunities based on candlestick patterns, such as the three black crows and the abandoned baby. 

7 Candlestick Patterns You Need To Know, With Examples!

As a day trader, I use patterns for my trade setups.

But how do I see the patterns? What is it I’m looking at to determine entry and exit points?

The simple answer: charts. But not just any chart …

I primarily use candlestick charts and patterns.

Why? Because they contain a high amount of information in an easy-to-read graphic. It’s a representation of a trading period I can use for detailed technical analysis.

If you want to learn to read candlestick charts in depth, I suggest you join my Trading Challenge . In the meantime, here’s a primer on candlesticks (with some great key tips after the lesson) …

Table of Contents

What Are Candlestick Patterns?

A candlestick pattern is a price movement that can be graphically shown to predict a specific market movement.

Candlestick charts give you a ton of information. A candlestick shows you the opening, closing, high, and low prices for the specific time frame.

But wait, there’s more! You can also see what the general sentiment was and whether buyers or sellers had the upper hand.

One of the reasons I use candlestick patterns & charts is because it’s easy to see patterns.

Candlestick chart patterns are almost like a template. The patterns don’t always look exactly the same, but they look similar enough that when you see them over and over, you realize they’re predictable — and that’s when things can get really interesting.

And they have cool names!

Simply put, they’re named based on what the pattern or individual candlestick looks like. A couple of examples (which I’ll get to later) are the hammer and the shooting star .

First, let’s start with the basics: how to read the charts.

How to Read Candlestick Charts?

Reading candlesticks isn’t difficult once you know what you’re looking at. Candlesticks have two main parts: the candlestick body, and the shadow.

The body is the part that looks like the body of a candle. The shadow is the part that looks like a wick. Take a look a the picture below. Candlestick shadows can (and often do) extend from both the top and bottom of the body.

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The body tells you three things:

  1. The opening price
  2. The closing price
  3. Whether the share price went up or down

In most modern charting software, a green or white candlestick tells you the price closed higher than it opened. Red or black candles signify a closing price lower than it opened.

Traditional candles are black (filled in) for bearish or downtrending candles and open/white (not filled in) for bullish candles.

The bottom of the candlestick body gives you either the opening or closing price. Let’s stick with red and green to make this simple.

A red candlestick shows the open price at the top of the body and the closing price at the bottom of the body.

A green candlestick shows the open price at the base of the body and the closing price at the top of the body.

So what’s with the lines (shadows) sticking out the top and bottom? The shadows tell you the high and low for the time frame. The top shadow gives the high for the period, regardless of whether the candle is bearish or bullish. The bottom shadow gives the low for the period.

Trending vs. non-trending can mean a couple of different things …

When you look at a candlestick chart, some candles continue or confirm a trend . These are considered trending candles. If a candle goes against the trend it might be considered a non-trending candle.

Something else you often see is candles without an upper or lower wick or shadow. When you see a candle with no shadows it signifies a strong trend during that time frame.

For example, if you see a green candle with no shadows, the open was the same as the low and the close was the same as the high for the time frame. Likewise, for a red candle with no shadows: the open equals the high and the close equals the low. In both cases, there was no resistance to new price movement.

If the price of a stock rises for the first three minutes of a five-minute candle, but then settles back just above where it opened, a shadow remains above the body. The shadow is an example of higher prices being resisted. Yes, the price went there, but it couldn’t hold. Instead, there’s a shadow.

You can consider the shadows as tests of a price range while the body confirms the range for the period.

Clean candles with no shadow signify a strong trend in one direction because the new prices are confirmed instead of resisted. Candles with a long body moving away from a short shadow (e.g. a green, long body, short lower shadow) also signify trend. As do candles with a short body and long shadow …

Don’t give up. I think I can make this easier for you. Check this out …

I’m going to explain different types of candles with examples below. This will likely make a lot more sense once you see the examples!

The important thing to remember is that candlesticks provide information about the trend. While they aren’t 100% accurate (trends change, right?) they give you an idea what to look for — and that’s an edge you want with your trading .

So stay with me here. Once this sinks in, you’re gonna be glad you hung in there and learned it.

Their Benefits

How do you use candlestick patterns for day trading?

What if I told you I had a trading tool that gives you the following information:

  • Price action: weak or strong?
  • Trend: bullish or bearish?
  • Who’s in control: buyers or sellers?
  • Has there been any low or high testing of prices but they were rejected?
  • Are there a lack of buyers or sellers?

You might say to yourself, “Tim, that sounds like an awesome tool. What is it? How do I use it?” Well, that’s what candlestick charts tell you. You just have to learn how to read the message and then put it to use in your trading!

See, this is awesome stuff. So stick it out and learn it!

Remember, there’s not one right trade vs. wrong trade. We’re all different. You have to figure out a pattern that works best for you. Candlestick patterns are a good way to figure out what’s right for you.

(Also, a good primer for newbies is my trader checklist. Check it out.)

Types of Candlestick Patterns

There are 5 bullish candlestick patterns that most people focus on and a bearish and Japanese pattern.

Bullish Candlestick Patterns

A bullish candlestick has a higher closing price than opening price . Bullish candlestick patterns have an upward trend. If the upward trend is contained within the period represented by a single candlestick, it will be either green or white.

Be aware a pattern may develop over several candlesticks and the pattern might include one or more bearish candlesticks. You’ll see this in the pattern examples below.

Bearish Candlestick Patterns

A bearish candlestick signifies the closing price is lower than the opening price . A bearish pattern has a downward trend. Like the example above, a bearish pattern doesn’t mean every single candlestick is bearish. A lot depends on the time frame for the candlestick.

Japanese Patterns

Don’t let this confuse you. When I (or any other trader) talk about candlestick patterns, we’re talking about Japanese candlestick patterns.

The whole concept of candlesticks — open-high-close-low in a simple graphic representation — comes from Japanese rice dealers. They used a few different styles of charts but what we now call the candlestick was likely introduced sometime in the 1860s.

Back in the late 1980s, candlesticks were introduced to the West by Steve Nison. He was the author of several books on the topic including the classic “Japanese Candlestick Charting Techniques.”

Jump forward to today and candlestick charts are the go-to style for many traders. Big props to the Japanese rice trader who figured this out. His name was Homma Munehisa and he made my trading career much simpler …

… and you’ll likely say the same if you learn how to read candlesticks and take advantage in your trading!

7 Candlestick Patterns That You Can Take Advantage of While Day Trading

As you study the following candlestick patterns, remember that context makes a difference.

Sometimes an individual candlestick looks the same in two different patterns. This is true of numbers 5 and 7 below.

They have different names based on the context — the overall trend. You might see the particular candlestick that gives these two their names and be confused at first. Take a step back and figure out what preceded them.

In the following section, I’ll give you the 7 candlestick patterns — explained — with examples to clarify .

I’ll show you what each candlestick looks like in the context of a chart so you can see what I mean.

#1 The Supernova

The supernova is one of my favorite chart patterns to play. Ok here’s your supernova mantra… repeat after me…

Supernovas occur when stocks experience high volume and high volatility. It’s an explosion in price that can provide many buying opportunities on the way up. Then there’s a huge drop in price which provides opportunities for short selling on the way down.

You only need to get in on a small piece of the move to be able to bank.** If you take a small chunk of the move over and over again it can add up fast because these stocks are so volatile.

The supernova can be triggered by almost anything. News, world events, company hype, message boards — I’ve seen it all. Be careful. Sometimes supernovas last longer or are bigger than you think they’ll be going in.

Example of The Supernova

#2 The Stair Stepper

A stair-stepper is almost like a slower version of a supernova . It rises progressively with brief periods of pullback and consolidation. The consolidation period sometimes trades in what many traders call sideways price action. It’s another of my favorite candlestick formations.

Be aware that the stair stepper can turn on you suddenly. If there’s not a proper catalyst and the price keeps rising, eventually it will come falling back down.

Notice on the TNDM example below — the first few ‘steps’ in March, April, and May (left side of chart) are small steps followed by long periods of sideways price action. Jump forward to June, July, August, and September and you see big steps with pullbacks.

Example of The Stair Stepper

#3 The Snore

Let’s see if I can sum up the snore in a few words: random-ass charts with no predictability.

The snore is a boring pattern — I don’t recommend trying to trade it .

This is one I include so you can avoid trading it. Learn to recognize it and stay away. The obvious sign is a lack of price movement even with news you’d normally expect to be a catalyst.

The best thing to do with snores is wait until you see something to verify they are in play. Remember, stocks can change patterns . You might have a stock that’s a supernova one year and a snore the next.

Take a look at the ENZN chart below. It shows a period of several months when this stock did nothing but make me want to snore. It’s difficult to see anything in terms of plays or momentum. This is an extreme example of the snore. Best stay away from these.

Example of The Snore

#4 The Crow

Have you ever watched a crow pecking away at food? One bite at a time — but never stopping until it’s gone.

I named this pattern the crow because that’s what I visualize when I see it. A crow, picking away at your money, one chunk at a time. Never stopping until there’s nothing left. This pattern looks like a long, slow fall . The stock sinks lower and lower in price.

The crow is caused by continuous selling pressure. Sometimes there’s a pushback — spurts of price strength — making it look like a reverse stair-stepper.

Take a look at the AGTK chart below. I included this chart because you can see it was in play back in December of 2020. At that time it went supernova. It stayed in play well into January and then started the long, slow decline characteristic of a crow.

Example of The Crow

#5 Shooting Star Pattern

The shooting star is bearish and found at the top of an uptrend . It has a short body, a long upper shadow, and little or no lower shadow. Look for three or more consecutive rising candles, each with higher highs. Then look for a falling candle with an upper shadow at least twice as long as the body.

During the time frame, the price rose high above the open, only to fall below it on the close. Price action drove the price up but it met selling pressure. A shooting star can signify a bearish reversal. It has to be at the top of an upward trend to be considered a shooting star.

Check out the NBEV chart below. This is an interesting one because it shows you just how this is not an exact science. Technically this one would be considered an unconfirmed shooting star. Maybe even a failed shooting star.

Look at the circled candle. It follows at least three uptrending candles with new highs each time. It has a long upper shadow from testing higher prices and it closed down. So why unconfirmed? Because the next candle didn’t close lower than the shooting star.

This is an example of a brief pullback where the candlestick looked like a shooting star but was unconfirmed. Instead, the bulls won the battle. A good reason to step back and wait for confirmation before making a play.

Example of Shooting Star Pattern

#6 Hammer Doji

A Doji candle occurs when the open and close are equal (or at least very close together).

Doji means “same time” in Japanese. There are several different types of doji such as the long-legged doji, the gravestone, and the dragonfly. For today, we’ll focus on the hammer doji, which is a type of dragonfly.

In a dragonfly, the open and close are virtually the same but there is a lower shadow. A hammer doji is a dragonfly at the bottom of a downtrend. It is a bullish reversal pattern and signals the price could start to rise.

A traditional hammer candle looks like a hammer (right?) but the hammer doji looks like the nail ready to be driven down. By itself, it’s not a bullish signal. But it lets you know there is a balance between the forces of buy and sell .

Here’s an interesting chart — it’s a one day chart for KGKG in 5-minute candlesticks. First, you can see there was a big price jump when the market opened. If you are wondering why the previous day closed at 1 p.m. — that was Black Friday. It’s only a half day of trading.

Anyway, there’s a big percent gain first thing in the morning. Then there was some consolidation which looks a lot like a bull pennant. The circled candlesticks are two hammer dojis in a row after several bearish candles. They signaled a brief upswing into more consolidation.

There’s a lot going on in this chart — from a bull flag to hammer dojis and our next candlestick pattern, the inverted hammer. By the way, this one’s on my watchlist right now .

(Want to get my weekly watchlist ? There’s no cost; you just sign up with your email.)

Keep in mind with all these patterns, you might not see them in every time frame. For day trading, you’ll be looking at what’s going on right now most of the time. But you can also confirm patterns by looking at a chart with a longer time frame.

Example of Hammer Doji

#7 Inverted Hammer Candle

The inverted hammer looks like an upside-down hammer. The shadow extends above the short body.

It’s interesting to note that this candle looks an awful lot like a shooting star. However, it is bullish rather than bearish (close is higher than open).

The inverted hammer is found after a downtrend and it signals a bullish reversal . I’m going to show you the same KGKG chart with an emphasis on the next candlestick after the hammer dojis we identified.

In this case, the inverted hammer is a confirmation of the reversal created by the price support of the hammer dojis. You might say it was the hammer that drove the nail down. Like I said, there’s a lot going on in this chart.

One thing to consider when looking at this chart: Notice the low trading volume (lower graph) during the late morning and early afternoon? This is also when most of the consolidation happened. Big price swings happen during high-volume trading. I prefer to make plays during the big swings.

Example of Inverted Hammer Candle

Key Candlestick Patterns Tips

I hope you now understand the importance of the candlestick chart in technical analysis .

I have a few key tips for you:

  1. The doji and all its variations are important. They signal a balance between buyers and sellers. They often signal a reversal. Learn your dojis!
  2. Long shadows have meaning. When there is a long shadow, it tells you there was either selling or buying pressure that was resisted. The battle between buyers and sellers was hard fought but somebody came out ahead.
  3. Candlesticks capture the momentum of a stock’s price over the given time frame.
  4. Finally, time frame is important. Don’t get caught thinking some major pattern is unfolding without confirming it. If you see something on the 1-year daily chart, it might not be true at 2 p.m. on the day you’re trading. Make sense?

Bonus Tip: Never Stop Learning

I’ve only scratched the surface of candlestick patterns. Since you’re serious about trading, you need to study this subject . A lot. Like, every day. Make it a habit . You should be looking at charts and trying to find these patterns so you can identify them. They need to become second nature.

Which leads me to…

Learn Candlestick Patterns With the Trading Challenge

Yes, I teach my Trading Challenge students my favorite candlestick patterns . Better yet, other students jump into the chat room and help out. You can’t find a better, more engaged, trading community anywhere. Are you ready? Apply for my Trading Challenge .

The Bottom Line

Candlesticks patterns are packed with information that you can take advantage of while trading. I hope you see there’s a simple beauty to candlesticks, but there’s also a huge amount to learn.

Like everything to do with day trading, you can’t cheat success. Since you want to master this set of skills, it’s time to get to work. Put in the time and effort and it can potentially pay off for you.

Are you a trader? Tell me about your favorite candlestick patterns in the comments below. If this is all new to you, I’d love to hear from you.

Frequently Asked Questions

What is a candlestick pattern?

A candlestick pattern is a price movement that can be graphically shown to predict a specific market movement.

How many types of candlestick patterns are there?

There are 5 bullish candlestick patterns that most people focus on and a bearish and Japanese pattern.

Is candlestick charting reliable?

Not all candlestick patterns are reliable but finding one that charts fundamentals can be beneficial.

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Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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      Comments ( 19 )
      Hey Everyone,

      As many of you already know I grew up in a middle class family and didn’t have many luxuries. But through trading I was able to change my circumstances –not just for me — but for my parents as well. I now want to help you and thousands of other people from all around the world achieve similar results!

      Which is why I’ve launched my Trading Challenge. I’m extremely determined to create a millionaire trader out of one my students and hopefully it will be you.

      So when you get a chance make sure you check it out.

      PS: Don’t forget to check out my free Penny Stock Guide, it will teach you everything you need to know about trading. :)

      You have mentor in helping you get started ? I’ve had money go out for help and still lost, went back to driving over road, what platform you use? Have videos can watch. My goal is to be off the road working from home.

      I thank you for your support

      Wow it’s all new knowledge to me. I appreciate

      Appreciate the content,

      I wonder how long these take to write.

      Sir I am from India what is your fees for trading challenge. How can I join

      Thank you Tim, for this blog!

      Thanks, this is all new Greek Chinese, but I love learning new information that can lead to success and new life paths for me. I admire your giving back too, I have done that all my life and stocks just let me do more giving. Thanks again Teacher

      Tx Tim for continued learning u always share with us,love the candlesticks,aloha,angi in Hana

      Hey Tim I clicked on ready for the trading challenge, I am already following you through all your agora financial program. Is this part of the same or something different I should add too that info?

      Totally different, I teach in many ways

      Tim I am seeing either a cup and handle forming with OSTK or a flag. Am I correct, or is the stock purely trading on speculations and following BTC-USD?

      I got “The Candlestick Charting Course”, “Japanese Candlestick Charting Technique” and “Bold” on CD ( I drive a lot) from my library.
      It’s fun to look for the candlestick lines that I am learning. Now when you say Doji I know what you mean. Yay.

      I’m a noob, so it’ll take a bit to get used to, like riding a bike, but I see exactly what your trying to teach…..

      I like to trade the first green day if possible..

      Lot of thanks for your all valuable information about the chart pattern

      Leave a Reply Cancel reply

      About Timothy Sykes

      I became a self-made millionaire by the age of 21, trading thousands of Penny Stocks – yep you read that right, penny stocks. You may have heard . Read more

      Tim’s Important Resources

      ** Results may not be typical and may vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here..

      Millionaire Media 80 S.W. 8th Street Suite 2000 Miami, Florida 33130 United States (203) 980-1361 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

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      Forex candlestick patterns

      Forex candlestick patterns are a popular tool to analyse price charts and confirm existing trade setups. They have been used for hundreds of years by Japanese rice traders and have made their way to the West through Steve Nison’s books. In this article, we’ll cover what Forex candlestick patterns are, how they’re formed, and how to trade on them.

      Forex candle formations

      Before we dig deeper into candlestick patterns, it’s important to understand how Forex candles are formed. Forex candles, or the candlestick chart, are OHLC charts, which means that each candle shows the open, high, low, and close price of a trading period. This is represented by the following picture.

      The solid body of a candlestick shows the open and close prices of a trading period, while the upper and lower wicks of the candle represent the high and low prices of that trading period.

      What are Forex trading candlestick patterns?

      Forex Japanese candlestick patterns are specific candlestick patterns that can signal a continuation of the underlying trend, or a trend reversal. These patterns can be single candlestick patterns, which means that they’re formed by a single candlestick, or multiple candlestick patterns which are formed by two or more candlesticks.

      Candlestick formations in Forex truly represent the psychology and sentiment of the market. They represent pure price action, and show the fight between buyers and sellers in a graphically appealing format.

      While Forex candle patterns are a great way to confirm an existing trade setup, traders should be cautious when trading solely on candlestick patterns as there can be a significant number of false signals.

      The most important candlestick patterns

      • Bullish and bearish engulfing patterns

      Bullish and bearish engulfing patterns are one of the best Forex candlestick patterns to confirm a trade setup. A bullish engulfing pattern forms when a green candlestick’s body completely engulfs the previous red candlestick, signalling strong buying momentum which breaks above the previous candlestick’s high. Bullish and bearish engulfing patterns are reversal patterns which include two candlesticks.

      A bullish engulfing pattern is shown on the following chart.

      Similar to bullish engulfing patterns, bearish engulfing patterns form when a large bearish candlestick completely engulfs the previous bullish candlestick’s body, signalling large selling momentum which goes beyond the previous candlestick’s low. A bearish engulfing pattern is shown on the following chart.

      • Hammer and hanging man patterns

      Hammer and hanging man patterns are also reversal patterns which form at the tops and bottoms of uptrends and downtrends. A hammer pattern forms at the bottom of a downtrend, with a small solid body and long lower wick, signalling that buyers had enough power to push the price back close to the opening price, hence the long lower wick. A hammer pattern is shown on the following chart.

      A hanging man pattern looks similar to a hammer pattern, with the only difference being that it forms at the top of an uptrend. In this case, a hanging man pattern shows that selling pressure is growing – represented by the long lower wick – despite the uptrend. A hanging man pattern is shown on the following chart.

      • Three inside up and three inside down patterns

      Three inside up and down patterns are triple candlestick patterns, which means that they’re formed by three candlesticks. A three inside up pattern begins with a bearish candlestick, followed by a bullish candlestick which forms inside the first candlestick, and followed by a third bullish candlestick which closes well above the high of the first candlestick. A three inside up pattern is shown on the following chart.

      Similarly, a three inside down pattern begins with a bullish candlestick, followed by a bearish candlestick which lies inside the first candlestick, followed by a second bearish candlestick which closes well below the first candlestick’s low. A three inside down pattern is shown on the following chart.

      The final candlestick pattern which we are going to cover, and also one of the most important Forex chart candlestick patterns, is the doji pattern. The doji pattern is a specific candlestick pattern formed by a single candlestick, with its opening and closing prices at the same, or almost the same level.

      A doji pattern signals market indecision. Neither buyers nor sellers managed to move the price far away from the opening price, signaling that a price reversal may be around the corner. A doji pattern is shown on the following chart.

      As you can see, a doji pattern can form both during an uptrend and downtrend.

      How to trade Forex based on candlestick patterns

      Candlestick patterns are a great tool used by many Forex traders to confirm a trade setup. They should not be used to trade on their own, as they can produce a large number of false signals along the way. That’s why you need a trade setup already in place, based on tools such as chart patterns, channels, or Fibo levels, which is then only confirmed with a candlestick pattern, such as an engulfing pattern or hanging man pattern.

      Forex candlestick strategy

      As we’ve previously stated, the best Forex trading candlestick strategy is to use candlestick patterns for trade setup confirmations. Let’s take a look at the following charts, which show how to use candlestick patterns for day trading Forex the correct way.

      1) Trading bullish pennants with engulfing patterns

      The chart above shows a bullish pennant pattern which is confirmed by a bullish engulfing pattern. Once the engulfing pattern forms, a trade could enter in the direction of the pennant breakout.

      2) Trading double bottoms with engulfing and hanging man patterns

      The next chart shows a common double top pattern, followed by a pullback signalled by a hanging man pattern. Once the pullback is completed, a bullish engulfing pattern confirms the opening of a trade in the direction of the breakout. Bear in mind that these are only two examples of how to use candlestick patterns. You can combine them with all types of chart patterns and trading strategies.

      Final words

      Candlestick patterns are a great tool for trade confirmations. They represent the psychology of the market and the psychology of buyers and sellers who fight to move the price up and down. As such, candlestick patterns shouldn’t be used to trade on their own, but only to confirm existing trade setups.

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      someone is listing viagra on my web site mwe3.com can you ask them to take it down! It is a music reviews site and not a viagra website!!

      What a stuffed search engine. How about results of the actual item we are looking for.

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