Candlesticks are graphical representations of price movements over a specific period of time, such as a minute, an hour, a day, or a week. Candlestick patterns, formed by the arrangement of multiple candlesticks, are often used in technical analysis to identify trends, reversals, and trading opportunities.
All charting software available are equipped to present trading data in the form of candlestick charts for technical analysis. We would suggest opening an account with Tradingview (you can start with the free version) as their software is very lucid and user friendly. However, if you already use a different software and are comfortable, please continue with it.
Anatomy - The anatomy of a candlestick consists of several components that provide valuable information about price action during a specific time period. Here's a breakdown of the key parts of a candlestick:
(Fig 1.0 - Anatomy of a Candle)
Real Body: The body of the candlestick represents the range between the open and close prices during the given time period. If the closing price is higher than the opening price, the body is coloured green or white to represent bullishness. Conversely, if the closing price is lower than the opening price, the body is coloured red or black to represent bearishness.
Wicks (or Shadows): The wicks, also known as shadows, extend above and below the body of the candlestick and represent the highest and lowest prices reached during the time period. The length of the wicks relative to the body can provide insights into the volatility and price movement during the period. Longer wicks indicate greater price volatility, while shorter wicks suggest more stability.
Open Price: The open price is the first price at which the asset traded during the time period represented by the candlestick. It is represented by the lower point of the body if the candle is bullish or by the top of the body if the candle is bearish.
Close Price: The close price is the last price at which the asset traded during the time period represented by the candlestick. It is represented by the ending point of the body if the candle is bullish or by the bottom of the body if the candle is bearish.
The candlestick patterns that you need to know to follow our Trading System is limited to only a few basic patterns out of an universe of tens of patterns with exotic names! This limited number is integral to our setups and are covered in this post. Throughout this course, we have consciously attempted to cut through the clutter to only include what works, and this is an example of that.
Important Candlestick Patterns : -
Bullish Pattern | Bearish Pattern | Neutral Pattern |
Big Green | Big Red | |
Hammer | Reverse Hammer (aka Shooting Star) | |
Bullish Engulfing | Bearish Engulfing | |
Piercing Pattern | Dark Cloud Cover | |
Doji | ||
Bullish Harami (a bullish variation of Inside Bar) | Bearish Harami (a bearish Variation of Inside Bar) | Inside Bar (part of Narrow Range Bar) |
The above are the basic candlestick patterns, mostly signifying reversal. Other patterns (with exotic names) are essentially a variation/combination of these basic patterns. You are better off not knowing them!
Please use the comments section if you need help with any of the patterns. Please click on "Next Post" to move to the first candlestick pattern - Big Green or Red Candle
Do the wicks of the candle represent the volume of trade at a specific prince in any manner ? I am assuming that they are wicks as they represent lower trade volume at a specific price…