WHAT ARE CANDLESTICKS ?

Japanese Candlesticks Patterns constitute the backbone for chart reading techniques used in trading stocks, commodities and forex. Streaming charts constitute of candlesticks, like beads are threaded together to form a necklace. 
If one has to have an understanding of price movement of any entity, he or she has to be proficient in reading candlesticks. Candlesticks patterns act as precursors to the impending market movements.

CANDLESTICK PATTERNS

A candlestick has open, high, low and close prices. These prices can be for 1 minute, 1hour or any other span of time.The time frame for which the chart is being tracked, each candlestick of that chart takes the same time from opening to closing.

Doji 
WHEN: The open and close are the same or almost same.
THEN: The bulls and the bears are conflicting. This is an alert for possible trend reversal.


Bullish Marubozu
WHEN: The open and low are same while close and high are at same price.
THEN: Bulls are in control till the end without any retracement in price.


Bearish Marubozu
WHEN: The open and high are same while close and open are at same price.
THEN: Bears are in control till the end without any retracement in price.




Bullish Engulfing
WHEN: The body of the second candle completely engulfs the body of the first candle.
THEN: This pattern suggests the bulls are stepping in with force and prices will move up.


Bearish Engulfing
WHEN: The body of the second candle completely engulfs the body of the first candle.
THEN: This shows the bears are taking charge, suggesting prices will move down.


Hammers and Hanging Man
WHEN: The lower shadow should be at least two times the length of the body. The color of the body is not important although a black body has slightly more bearish indications and a white body has slightly more bullish indications.
THEN: This pattern at the bottom of a down trend is called a Hammer. This pattern at the top of an uptrend is called a Hanging-Man.


Piercing Pattern
WHEN: A two candle pattern, the body of the first candle is black and the body of the second candle is white. The white candle opens lower. The price closes above the 50% level of the black body.
THEN: After a strong downtrend, the atmosphere is bearish but bulls are stepping in and prices are about to reverse.


Dark Cloud
WHEN: A two candle pattern, the body of the first candle is white and the body of the second candle is black. The black candle opens higher. The price closes below the 50% level of the white body.
THEN: After a strong uptrend, the atmosphere is bullish but bears are stepping in and prices are about to reverse.


Bullish Harami
WHEN: A two candle pattern forming in a down trending price pattern. The body of the first candle is the same color as the current trend and is a long black candle. The body of the second candle is white and opens and closes within the body of the previous candle.
THEN: After a strong downtrend the bulls step in and open the price higher than the previous candle's close. If next candle follows the trend, reversal is on the cards.




Bearish Harami
WHEN: A two candle pattern forming in an up trending price pattern. The body of the first candle is the same color as the current trend and is a long white candle. The body of the second candle is black and opens and closes within the body of the previous candle.
THEN: After a strong uptrend the bears step in and open the price lower than the previous candle's close. If next candle follows the trend, reversal is on the cards.


Morning Star
WHEN: A three candle pattern at the bottom of a down trend. The body of the first candle is black, confirming the current downtrend. The second candle is an indecisive formation. The third candle is white and should close at least halfway up the black candle.
THEN: After an apparent downtrend the bulls step in and open the price higher than the previous candle's close. The price finishes higher for the third candle, bullish movement is awaited.


Evening Star
WHEN: A three candle pattern at the top of an uptrend. The body of the first candle is white, confirming the current uptrend. The second candle is an indecisive formation. The third candle is black and should close at least halfway down the white candle.
THEN: After an apparant uptrend the bears step in and open the price lower than the previous candle's open. The price finishes lower for the third candle, bearish movement is awaited.


Gravestone
WHEN: The upper shadow should be at least two times the length of the body. The real body is at the lower end of the trading range. There should be no lower shadow or a very small lower shadow.
THEN: After a downtrend has been in effect, the atmosphere is bearish. The price opens and trades lower but before the end of the day, the bulls step in and take the price back up. A higher open or a white candle, following the move, reinforces buying.


Three Black Crows
WHEN: Three long black candles occur, after a strong uptrend, all of close to equal in length.
THEN: The uptrend has now reached a level where the sellers have started to step in. This persistent pressure by the bears provides the potential for a strong downtrend.


Three White Soldiers
WHEN: Three long white candles occur, after a strong downtrend, all of close to equal in length.
THEN: A downtrend has now reached a level where the buyers have started to step in. This persistent pressure by the bulls provides the potential for a long uptrend.


Shooting Star
WHEN: One candle pattern appearing in an uptrend. The shadow should be at least two times the length of the body. The color of the body is not important, although a black body has slightly more Bearish indications.
THEN: After a strong uptrend the bulls appear to still be in control with price opening higher, but by the end of the candle the bears step in and take the price back down to the lower end of the trading range. A lower open or a black candle, following the move, reinforces selling.   


Candle sticks patterns show trend formations or reversals in short term quite efficiently, if followed judiciously.