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Candlestick charting is a Japanese method of tracking the rise and fall of prices that adds depth and dimension to the standard bar chart. In addition, certain patterns of candlesticks are identified by colorfully descriptive names.
The body of the candlestick chart represents the range between the open and closing prices. The thin vertical line above and/or below the body is called the upper/lower shadow. A black, red, or filled-in body represents that the close during that time period was lower than the open.
A white, green, or open body represents a close that was higher than the open. Chart-watchers who use candlesticks often incorporate them into an overall
market analysis package that includes factors such as volume, previous day’s body and the recent trend.
Doji
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Doji are important candlesticks that provide information on their own and also feature in a number of important patterns. Doji form when a market open and close are basically equal. Alone, Doji are neutral patterns. Any bullish or bearish bias is based on previous price action and future confirmation. A Doji can signal weakening buying pressure only when it appears after a long green candlestick or an upward trend pattern.
Conversely, a Doji can signal weakening selling pressure when it appears after a long red bar or a downward trend pattern. Either way, Doji show that buying and selling pressure is evenly matched, and might indicate a possible trend reversal. This pattern alone is not enough to give the trader a sound
reversal signal. One must always look for more confirmation when these Doji appear.
Gravestone Doji
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Gravestone Doji form when the open, low and close are equal. The high of the day creates a long upper shadow, with an appearance similar to an upside down “T.” Gravestone Doji show that buying pressure pushed the market higher, only to have the selling pressure push prices back to the open.
Long-Legged Doji
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Long-Legged Doji show that the prices traded on either side of the open, then closed at the same price as the open. This movement forms long shadows on both sides of the open and close. This Doji could be more important after an uptrend or long green candlestick as it often indicates a turning point.
Bullish and Bearish Engulfing Lines
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An engulfing pattern occurs when the daily trading range is larger than the previous day’s range and has a counter-trend close. This pattern can indicate that the market has lost strength to continue in the direction in which it was previously headed.
Dark Cloud Cover
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Dark Cloud Cover is a formation that suggests nthe market is trying to reverse its uptrend, and is considered a bearish chart pattern. In Dark Cloud Cover, a long green candlestick is followed by a long red candlestick that opens above the green candlestick’s high. The long red candlestick must close well into the prior candlestick’s range for it to be valid.
Morning Star
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The Morning Star formation occurs when the market gaps lower with a green body following a long, red body. After this star is formed, a third body that is a green candlestick closes well into the first session’s red body. This hints at a change in trend without revealing the duration of this trend change.
Shooting Star
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A Shooting Star is a bearish development. It is formed when a candlestick with a long upper shadow and little (if any) body closes near the lows of the day. This indicates a change in market sentiment as it tries to work higher but runs out of strength and then moves into the red.
Piercing Line: A bullish pattern in which the open is lower than the previous low but it closes more than halfway above the first line’s body. The opposite of Dark Cloud Cover.
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Hanging Man/Hammer: These lines are bearish only if they occur after a fairly large uptrend. If this pattern occurs after a downtrend, it is called a Hammer.
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Evening Star: This bearish pattern nindicates a potential top. The star indicates a possible reversal, and the bearish, red candlestick is confirmation.
The body of the candlestick chart represents the range between the open and closing prices. The thin vertical line above and/or below the body is called the upper/lower shadow. A black, red, or filled-in body represents that the close during that time period was lower than the open.
A white, green, or open body represents a close that was higher than the open. Chart-watchers who use candlesticks often incorporate them into an overall
market analysis package that includes factors such as volume, previous day’s body and the recent trend.
Doji
[You must be registered and logged in to see this image.]
Doji are important candlesticks that provide information on their own and also feature in a number of important patterns. Doji form when a market open and close are basically equal. Alone, Doji are neutral patterns. Any bullish or bearish bias is based on previous price action and future confirmation. A Doji can signal weakening buying pressure only when it appears after a long green candlestick or an upward trend pattern.
Conversely, a Doji can signal weakening selling pressure when it appears after a long red bar or a downward trend pattern. Either way, Doji show that buying and selling pressure is evenly matched, and might indicate a possible trend reversal. This pattern alone is not enough to give the trader a sound
reversal signal. One must always look for more confirmation when these Doji appear.
- This line implies indecision. The market opened and closed at the same price.:
Gravestone Doji
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Gravestone Doji form when the open, low and close are equal. The high of the day creates a long upper shadow, with an appearance similar to an upside down “T.” Gravestone Doji show that buying pressure pushed the market higher, only to have the selling pressure push prices back to the open.
- Gravestone Doji:
Long-Legged Doji
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Long-Legged Doji show that the prices traded on either side of the open, then closed at the same price as the open. This movement forms long shadows on both sides of the open and close. This Doji could be more important after an uptrend or long green candlestick as it often indicates a turning point.
- Long-Legged Doji:
Bullish and Bearish Engulfing Lines
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An engulfing pattern occurs when the daily trading range is larger than the previous day’s range and has a counter-trend close. This pattern can indicate that the market has lost strength to continue in the direction in which it was previously headed.
- Engulfing Line:
Bullish Engulfing Line: This pattern is very bullish if it occurs after a fairly large downtrend, acting as a reversal pattern.
Bearish Engulfing Line: This pattern is very bearish if it occurs after a fairly large uptrend, acting as a reversal pattern.
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Dark Cloud Cover
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Dark Cloud Cover is a formation that suggests nthe market is trying to reverse its uptrend, and is considered a bearish chart pattern. In Dark Cloud Cover, a long green candlestick is followed by a long red candlestick that opens above the green candlestick’s high. The long red candlestick must close well into the prior candlestick’s range for it to be valid.
- Dark Cloud Cover:
Morning Star
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The Morning Star formation occurs when the market gaps lower with a green body following a long, red body. After this star is formed, a third body that is a green candlestick closes well into the first session’s red body. This hints at a change in trend without revealing the duration of this trend change.
- Morning Star:
Shooting Star
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A Shooting Star is a bearish development. It is formed when a candlestick with a long upper shadow and little (if any) body closes near the lows of the day. This indicates a change in market sentiment as it tries to work higher but runs out of strength and then moves into the red.
- Shooting Star:
Other Candlestick Formations
[You must be registered and logged in to see this image.]Piercing Line: A bullish pattern in which the open is lower than the previous low but it closes more than halfway above the first line’s body. The opposite of Dark Cloud Cover.
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Hanging Man/Hammer: These lines are bearish only if they occur after a fairly large uptrend. If this pattern occurs after a downtrend, it is called a Hammer.
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Evening Star: This bearish pattern nindicates a potential top. The star indicates a possible reversal, and the bearish, red candlestick is confirmation.
