Learn Japanese Candlestick Charting Techniques for Trading Success
The Candlestick patterns is soul of stock market.All traders in stock market daily read ,analyze and take decision based on candlestick pattern.In this article we can study all the details of Japanese candlestick charting techniques, which is a basic of stock market and with the help of these techniques we can improve your trading strategy.
What is Candlestick in trading?
A candlestick is a type of price chart that displays the high, low, open, and closing prices of the chosen time frame and this technique is used in technical analysis.
As per above image to be consider to know what is bullish and bearish candlestick pattern.
If the close is above the open, we can say that the candlestick is bullish which means that the market is rising in this period of time. Bullish candlesticks are always displayed as white candlestick.
If the close is below the open, we can say that the candlestick is bearish which indicates that the market is falling in this session. Bearish candles are always displayed as black candlesticks.
The most trading platform use white color to refer to bullish candlesticks where as bearish candlesticks refer to black.But this is not a rule.As per your appearance you can change it easily.
- The filled part of the candlestick is called the Body.
- The thin lines poking above and below the body are called Shadows or Wick.
- The top of the upper shadow is the High
- The bottom of the lower shadow is the Low.
Bullish Candlestick pattern
Bullish Candlestick consist of body,Head & Tail.
Body -In bullish candlestick pattern the open price is less than closing price.
Head -High made a candlestick that specific time period also known as upper shadow.
Tail- Low made a candlestick that specific time period also known as lowe shadow.
Bearish Candlestick pattern
Bearish Candlestick consist of body,Head & Tail.
Body -In bearish candlestick pattern the open price is greater than closing price.
Head -High made a candlestick that specific time period also known as upper shadow.
Tail- Low made a candlestick that specific time period also known as lowe shadow.
All Candlestick Patterns
Bullish Reversal Candlestick patterns
- Hammer
- Inverted Hammer
- Bullish engulfing
- Bullish Harami
- Spinning Bottom
Hammer Candlestick pattern
Hammer is strong powerful single buying candle appears in down trends. They have a small body and a long lower shadow or wick.
The hammer candlestick occurs when sellers enter the market during down trends. By the time of market close, buyers absorb selling pressure and push the market price near the opening price.
The close can be above or below the opening price, although the close should be near the open for the body of the candlestick to remain small.The colour of the candle does not matter – it could be either red or green.
The lower shadow or wick should be at least two times the height of the body.
Hammer candlesticks indicate a potential price reversal to the upside. The price must start moving up following the hammer; this is called confirmation of bullish reversal.
The hammer candlestick occurs when sellers enter the market during down trends. By the time of market close, buyers absorb selling pressure and push the market price near the opening price.
The close can be above or below the opening price, although the close should be near the open for the body of the candlestick to remain small.The colour of the candle does not matter – it could be either red or green.
The lower shadow or wick should be at least two times the height of the body.
Hammer candlesticks indicate a potential price reversal to the upside. The price must start moving up following the hammer; this is called confirmation of bullish reversal.
Inverted Hammer is strong powerful single buying candle appears in down trends. They have a small body and a long lower shadow or wick.
The Inverted Hammer gets formed when the price opens at a certain level and then goes much higher
The price hits a high and then it falls drastically to close near its opening.
The colour of the candle does not matter – it could be either red or green.
It will be a red candle if the closing price is lower than the opening price. It will be a green candle if the closing price is higher than the opening price. Both are called Inverted Hammer.
The Upper shadow or wick should be at least two times the height of the body.
Inverted Hammer candlesticks indicate a potential price reversal to the upside. The price must start moving up following the inverted hammer; this is called confirmation of bullish reversal.
Bullish Engulfing
The bullish engulfing consists of two candlesticks, the first one is the small body, and the second is the engulfing candle which engulf first candle.
The bullish engulfing candlestick pattern tells us that the market is no longer under control of sellers, and buyers will take control of the market.
When a bullish engulfing candle forms in the context of an uptrend, it indicates a continuation signal.
When a bullish engulfing candle forms at the end of a downtrend, the reversal is much more powerful as it represents a capitulation bottom.
Bullish engulfing candlestick patterns are more likely to signal reversals when they are preceded by three or more red candlesticks,that means in sharp fall.
The bullish engulfing candlestick pattern tells us that the market is no longer under control of sellers, and buyers will take control of the market.
When a bullish engulfing candle forms in the context of an uptrend, it indicates a continuation signal.
When a bullish engulfing candle forms at the end of a downtrend, the reversal is much more powerful as it represents a capitulation bottom.
Bullish engulfing candlestick patterns are more likely to signal reversals when they are preceded by three or more red candlesticks,that means in sharp fall.
Bullish Harami
The Harami pattern (pregnant in Japanese) is considered as a reversal and continuation pattern.The pattern consists of two candle.
The first candle should be long red candle Mother candle while second candle should be small green inside candle baby candle.
The formation of two candle look like pregnant woman the large candle is woman and small candle is baby.
The Bullish Harami Candlestick pattern is reversible candlestick pattern,trend reversible.
Spinning Bottom candlestick pattern
Spinning Bottom candlestick pattern is similar like a doji candlestick pattern.This candlestick formation signals indecisiveness amongst buyers and sellers, as neither of these sides has the upper hand, which is why it is classified as a neutral pattern.
Pattern structure A spinning bottom pattern is formed by a single candle, with long wicks extending higher and lower, and a short body.
Ideally, these two wicks should be of similar length, with a short body and a small difference between the opening price and close.
It is important to note that this pattern is much stronger in a trending market, be it uptrend or downtrend.When it takes place in a choppy market, it can be seen as another signal that there is no clarity in the price action.In a strong uptrend or downtrend, the spinning bottom shows there is a new balance of forces in the price action.
Pattern structure A spinning bottom pattern is formed by a single candle, with long wicks extending higher and lower, and a short body.
Ideally, these two wicks should be of similar length, with a short body and a small difference between the opening price and close.
It is important to note that this pattern is much stronger in a trending market, be it uptrend or downtrend.When it takes place in a choppy market, it can be seen as another signal that there is no clarity in the price action.In a strong uptrend or downtrend, the spinning bottom shows there is a new balance of forces in the price action.
Unlike the previous sessions, where one side dominated the market and pushed the price action in its desired direction, a spinning top signals that the opposite side of the market is now growing in the game, and the short-term outcome is uncertain.
As with almost all candlestick patterns, the role of the next candle is important.
In case of a reversal, the candle next to the spinning bottom should be opposite of the prevailing trend, while for continuation patterns, you look for a candle that goes in the same direction to confirm that the price action is continuing in the same direction.
As with almost all candlestick patterns, the role of the next candle is important.
In case of a reversal, the candle next to the spinning bottom should be opposite of the prevailing trend, while for continuation patterns, you look for a candle that goes in the same direction to confirm that the price action is continuing in the same direction.
Bearish Reversal Candlesticks patterns
- Hanging Man
- Shooting Star
- Bearish Engulfing
- Bearish Harami
- Spinning Top
The hanging man occurs when two criteria are present: an asset has been in an uptrend, and the candle has a small body and a long lower shadow or wick.
The close can be above or below the opening price, although the close should be near the open for the body of the candlestick to remain small.The colour of the candle does not matter – it could be either red or green.
The lower shadow or wick should be at least two times the height of the body.
Hanging man candlesticks indicate a potential price reversal to the downside. The price must start moving down following the Hanging man; this is called confirmation of bearish reversal.
Shooting Star
The close can be above or below the opening price, although the close should be near the open for the body of the candlestick to remain small.The colour of the candle does not matter – it could be either red or green.
The lower shadow or wick should be at least two times the height of the body.
Hanging man candlesticks indicate a potential price reversal to the downside. The price must start moving down following the Hanging man; this is called confirmation of bearish reversal.
The shooting formation is formed when the open low, and close are roughly the same price, this candle is characterized by a small body and a long upper shadow. It is the bearish version of the hammer.
Professional technicians say that the shadow should be twice the length of the real body.
A shooting star occurs after an advance and indicates the price could start falling
The formation is bearish because the price tried to rise significantly during the day, but then the sellers took over and pushed the price back down toward the open.Traders typically wait to see what the next candle (period) does following a shooting star. If the price rises after a shooting star, the formation may have been a false signal
Conclusion
Candlestick patterns are a popular tool used by traders to analyze the price movement of financial assets.There are numerous candlestick patterns, each with its own significance and interpretation. Some common patterns we can see above article include the doji, hammer, engulfing pattern, and harami. Traders use these patterns to identify potential trend reversals or continuations, and use above knowledge their trading decisions.
