What are Candlesticks?

 WHAT ARE CANDLESTICKS?

Candlesticks are the Patten drawn in a Technical Chart used in the Share markets to assess the trend of Prices of a stock.  This will enable the user to assess the way of prices used along with some other indicators like Volume Weighted Average Price (VWAP)or Stochastic RSI indicator and/or Moving Average (Simple or Exponential) depending upon the individual's strategies.

Reliability in usage of Candlesticks in predicting the direction of Stock Market is considered to be high as it has yielded maximum profits, if appropriate and timely action is taken  by the user in Day Trading. 

While many Traders are using different Strategies, for a beginner, the study and understanding of Candlesticks is essential to avoid any loss by picking up an irrelevant stock or making entry and exit at wrong time intervals.  Candlesticks are also believed to be the most Powerful tool to assess the market trend.  

Though none of the patterns or strategies are going to give 100% guarantee for a winning deal, Candlestick study may give accuracy in assessing the trend of the Market, if timely action is taken by the Trader.

There are mainly Ten types of Candlesticks that we will be discussing in this post are considered to mostly give successful results both in Bullish or Bearish Markets.  They are explained as under :

EXPLAINING CANDLESTICK PATTERN :

PRICE INCREASING TREND (SUPPORT LEVEL)	PRICE DECLINING TREND (RESISTANCE LEVEL)
FOR BUY	FOR SELL
HAMMER –  (Single Candle) ·        Should come after 2 or 3 BEARISH Successive Candles ·        Should come in DOWNWARD TREND only ·        Wick should be at least 2 times length of its body ·        Colour can be either GREEN or RED ·        This conveys the meaning that the BUYERS have increased. ·        This shows the PRICE may GO UP ·        ENTER IMMEDIATELY AFTER BREAKOUT BY THE NEXT CANDLE.	SHOOTING STAR : (Single Candle) ·        Should come after 2 or 3 BULLISH Successive Candles ·        Should come in UPWARD TREND only ·        Wick should be at least 2 times length of its body ·        Like an Inverted Hammer with Wick size of 2 or 3 times MORE than the BODY. ·        This conveys that more SELLERS have entered into the Market. ·        This shows the PRICE may COME DOWN ·        ENTER in the NEXT CANDLE below the LOW of the previous SHOOTING STAR CANDLE.

 

BULLISH ENGULFING : (Combination of 2 Candles) ·        There hould be minimum 2 or 3 BEARISH Successive Candles ·        If the 3rd  or NEXT Candle comes in GREEN colour, the size of which should be MORE THAN the PREVIOUS RED Candle, which should have engulfed the RED candle size. ·        This conveys that the large no. of BUYERS have entered into the Market. ·        This shows that the PRICE is INCREASING. ·        ENTER IMMEDIATELY AFTER BREAKOUT HIGH BY THE NEXT CANDLE.	BEARISH ENGULFING: (Combination of 2 Candles) ·        There hould be minimum 2 or 3 BULLISH Successive Candles ·        If the 3rd  or NEXT Candle comes in RED colour, the size of which should be MORE THAN the PREVIOUS GREEN Candle, which should have engulfed the GREEN candle size ·        This conveys that the large no. of SELLERS have entered into the Market. ·        This shows that the PRICE is DECREASING. ·        ENTER IMMEDIATELY AFTER BREAKOUT OF LOW BY THE NEXT CANDLE.
MORNING STAR : (Combination of 3 Candles) ·        There hould be minimum 2 or 3 BEARISH Successive Candles ·        A small candle after 2 or 3 candles shows that there is not much momentum. ·        It will be containing small body, small wicks on top and bottom. This can be a Doji also. ·        This conveys that the SELLING pressure has come DOWN. ·        If the NEXT Candle comes in GREEN Colour of big size. ·        This shows that the PRICE may GO UP ·        ENTER IMMEDIATELY AFTER BREAKOUT OF HIGH BY THE NEXT CANDLE	EVENING STAR: (Combination of 3 Candles) ·        There hould be minimum 2 or 3 BULLISH Successive Candles ·        A small candle after 2 or 3 candles shows that there is not much momentum. ·        It will be containing small body, small wicks on top and bottom. This can be a Doji also. ·        This conveys that the BUYING pressure has come DOWN. ·        If the NEXT Candle comes in RED Colour of big size. ·        This shows that the PRICE may COME DOWN ·        ENTER IMMEDIATELY AFTER BREAKOUT OF LOW BY THE NEXT CANDLE
SPINNING TOP (Bullish) ·        There hould be minimum 2 or 3 BEARISH Successive Candles ·        Small Body with equal Wicks on both Bottom and Top. ·        This conveys the meaning that both Buyers and Sellers are almost equal in number. ·        Wait for the next candle to come. ·        This can be both in GREEN or RED colour. ·        This NEXT CANDLE should BREAK OUT the price range of the PREVIOUS CANDLE with equal size of wicks. ·        This shows that the PRICE may GO UP ·        ENTER only after the NEXT GREEN CANDLE  which breaks out the HIGH level of the previous Candle	SPINNING TOP (Bearish) ·        There hould be minimum 2 or 3 BULLISH Successive Candles ·        Small Body with equal Wicks on both Bottom and Top. ·        This conveys the meaning that both Buyers and Sellers are almost equal in number. ·        Wait for the next candle to come. ·        This can be both in GREEN or RED colour. ·        This NEXT CANDLE should BREAK OUT the price range of the PREVIOUS CANDLE with equal size of wicks. ·        This shows that the PRICE may COME DOWN ·        ENTER only after the NEXT RED CANDLE  which breaks out the LOW level of the previous Candle.

 

INVERTED HAMMER: (Single Hammer) ·        Should come after 2 or 3 BEARISH Successive Candles. ·        Should have Minimum LOW wick. ·        The INVERTER HAMMER Candle should CLOSE below the PREVIOUS RED CANDLE ·        This conveys that more no. of BUYERS  have entered into the Market. ·        Wait for NEXT Candle. ·        The Inverted Hammer can be either GREEN or RED. ·        The Wick should be at least 2 times of the Body of the Candle. ·        NEXT CANDLE Should be GREEN and BREAK OUT the TOP level of the previous Inverted Hammer Candle.

HANGING MAN (Single Hammer) ·        Should come after 2 or 3 BULLISH Successive Candles. ·        Should have Minimum TOP wick. ·        The HANGING MAN Candle should CLOSE above the PREVIOUS GREEN CANDLE. ·        This conveys that more no. of SELLERS have entered into the Market. ·        Wait for NEXT Candle. ·        The HANGING MAN can be either GREEN or RED. ·        The Wick should be at least 2 times of the Body of the Candle. ·        NEXT CANDLE Should be RED and BREAK OUT the LOW level of the previous HANGING MAN Candle.

CANDLESTICK PATTERN - SUMMARY
For BUYING SIGNAL
Comes in DOWNWARD Trend, after 2/3 Red candles

1.    HAMMER – DOWNWARD Trend REVERSAL - Entry should be IMMEDIATE in the next GREEN candle.

2.  BULLISH ENGULFING – DOWNWARD Trend REVERSAL Size of GREEN Candle should be more than the previous Red Candle. Entry should be IMMEDIATELY in the GREEN Candle.

3.  MORNING STAR – DOWNWARD Trend REVERSAL GREEN candle AFTER Small Candle with Small Body, Small Wick on TOP and BOTTOM or can be a DOJI. Entry should be IMMEDIATELY in the GREEN Candle.

4.   SPINNING TOP - DOWNWARD Trend REVERSAL GREEN candle AFTER Small Candle with Small Body, equal size Wicks on TOP and BOTTOM or can be a DOJI. Wait for the next GREEN Candle and entry should be after the BREAK OUT of the previous Candle.

5.   INVERTED HAMMER - DOWNWARD Trend REVERSAL should have Minimum LOW wick. The INVERTER HAMMER Candle should CLOSE below the PREVIOUS RED CANDLE. Wait for NEXT Candle and ENTER after the BREAK OUT OF the previous Candle.

 

For SELLING SIGNAL
Comes in UPWARD Trend, after 2/3 Green candles

1.    SHOOTING STAR – UPWARD TREND REVERSAL Entry IMMEDIATE in the next GREEN candle.

2.  BEARISH ENGULFING – UPWARD TREND REVERSAL Size of RED Candle should be more than the previous Green Candle. Entry should be IMMEDIATE in the RED Candle.

3.  EVENING STAR – UPWARD TREND REVERSAL Red candle AFTER Small Candle with Small Body, Small Wick on TOP and BOTTOM or can be a DOJI. Entry - IMMEDIATELY in the RED Candle.

4.   SPINNING TOP - UPWARD TREND REVERSAL RED candle AFTER Small Candle with Small Body, equal size Wicks on TOP and BOTTOM or can be a DOJI. Wait for the next RED Candle and entry should be after the BREAK OUT of the previous Candle.

5.   HANGING MAN - UPWARD TREND REVERSAL should have Minimum LOW wick. The HANGING MAN Candle should CLOSE below the PREVIOUS GREEN CANDLE. Wait for NEXT RED Candle and ENTER after the BREAK OUT OF the previous Candle.