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 prices are 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.
The reliability of using Candlesticks to predict the direction of the 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 use 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 market trends.
Though none of the patterns or strategies are going to give a 100% guarantee for a winning deal, a 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:
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PRICE INCREASING TREND
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PRICE DECLINING TREND
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FOR BUY
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FOR SELL
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HAMMER – (Single Candle)
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· Should come after 2 or 3 BEARISH Successive Candles
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· Should come in DOWNWARD TREND only
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· Wick should be at least 2 times the length of its body
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· Colour can be either GREEN or RED
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· This conveys the meaning that the BUYERS have increased.
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· This shows the PRICE may GO UP
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· ENTER IMMEDIATELY AFTER BREAKOUT BY THE NEXT CANDLE.
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SHOOTING STAR: (Single Candle)
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· Should come after 2 or 3 BULLISH Successive Candles
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· Should come in UPWARD TREND only
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· Wick should be at least 2 times the length of its body
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· Like an Inverted Hammer with a Wick size of 2 or 3 times MORE than the BODY.
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· This conveys that more SELLERS have entered into the Market.
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· This shows the PRICE may COME DOWN
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· ENTER in the NEXT CANDLE below the LOW of the
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BULLISH ENGULFING:
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· There should be a minimum of 2 or 3 BEARISH Successive Candles
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· If the 3rd or NEXT Candle comes in GREEN color, the size of which should be MORE THAN the PREVIOUS RED Candle, which should have engulfed the RED candle size.
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· This conveys that the large no. of BUYERS have entered into the Market.
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· This shows that the PRICE is INCREASING.
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· ENTER IMMEDIATELY AFTER THE BREAKOUT HIGH BY THE NEXT CANDLE.
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BEARISH ENGULFING: (Combination
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· There should be a minimum of 2 or 3 BULLISH Successive Candles
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· If the 3rd or NEXT Candle comes in RED color, the size of which should be MORE THAN the PREVIOUS GREEN Candle, which should have engulfed the GREEN candle size
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· This conveys that the large no. of SELLERS have entered into the Market.
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· This shows that the PRICE is DECREASING.
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· ENTER IMMEDIATELY AFTER THE BREAKOUT OF THE LOW BY THE NEXT CANDLE.
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MORNING STAR : (Combination of 3 Candles)
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· There hould be minimum 2 or 3 BEARISH Successive Candles
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· A small candle after 2 or 3 candles shows that
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· It will contain a small body and small wicks on top and bottom. This can be a Doji also.
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· This conveys that the SELLING pressure has come DOWN.
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· If the NEXT Candle comes in GREEN Colour of big size.
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· This shows that the PRICE may GO UP
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· ENTER IMMEDIATELY AFTER THE BREAKOUT OF HIGH BY THE NEXT CANDLE
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EVENING STAR: (Combination of
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· There hould be minimum 2 or 3 BULLISH Successive Candles
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· A small candle after 2 or 3 candles shows that
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· It will contain a small body and small wicks on top and bottom. This can be a Doji also.
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· This conveys that the BUYING pressure has come DOWN.
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· If the NEXT Candle comes in RED Colour of big size.
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· This shows that the PRICE may COME DOWN
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· ENTER IMMEDIATELY AFTER THE BREAKOUT OF THE LOW BY THE NEXT CANDLE
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SPINNING TOP (Bullish)
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· There should be a minimum of 2 or 3 BEARISH Successive Candles
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· Small Body with equal Wicks on both the Bottom and Top.
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· This conveys the meaning that both Buyers and Sellers are almost equal in number.
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· Wait for the next candle to come.
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· This NEXT CANDLE should BREAK OUT the price range of the PREVIOUS CANDLE with equal size of wicks.
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· This shows that the PRICE may GO UP
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· ENTER only after the NEXT GREEN CANDLE which
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SPINNING TOP (Bearish)
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· There should be a minimum of 2 or 3 BULLISH Successive Candles
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· Small Body with equal Wicks on both the Bottom and Top.
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· This conveys the meaning that both Buyers and Sellers are almost equal in number.
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· Wait for the next candle to come.
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· This can be both in GREEN or RED color.
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· This NEXT CANDLE should BREAK OUT the price range of the PREVIOUS CANDLE with equal size of wicks.
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· This shows that the PRICE may COME DOWN
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· ENTER only after the NEXT RED CANDLE which
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INVERTED HAMMER: (Single Hammer)
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· Should come after 2 or 3 BEARISH Successive Candles.
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· Should have a Minimum LOW wick.
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· The INVERTER HAMMER Candle should CLOSE below the PREVIOUS RED CANDLE
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· This conveys that more no. of BUYERS have entered into the Market.
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· Wait for the NEXT Candle.
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· The Inverted Hammer can be either GREEN or RED.
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· The Wick should be at least 2 times the Body of the Candle.
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· NEXT CANDLE Should be GREEN and BREAK OUT the TOP level of the previous Inverted Hammer Candle.
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HANGING MAN (Single Hammer)
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· Should come after 2 or 3 BULLISH Successive Candles.
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· Should have a Minimum TOP wick.
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· The HANGING MAN Candle should CLOSE above the PREVIOUS GREEN CANDLE.
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· This conveys that more no. of SELLERS have entered into the Market.
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· Wait for the NEXT Candle.
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· The HANGING MAN can be either GREEN or RED.
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· The Wick should be at least 2 times the Body of the Candle.
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· NEXT CANDLE Should be RED and BREAK OUT the LOW level of the previous HANGING MAN Candle.
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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 The Size of the GREEN Candle should be larger 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 a Minimum LOW wick. The INVERTER HAMMER Candle should CLOSE below the PREVIOUS RED CANDLE. Wait for the 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 the 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 a 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 a Minimum LOW wick. The HANGING MAN Candle should CLOSE below the PREVIOUS GREEN CANDLE. Wait for the NEXT RED Candle and ENTER after the BREAK OUT OF the previous Candle.