Candlestick overview
Candlestick analysis is a tool that offers a glimmer into the psychology of short term trading activity. This tool can be powerful when used in combination with other technical analysis tools.
A Candlestick contains open, high, low and close values for for a specific period of time. The hollow or filled portion of the candlestick is called the body. The long thin lines above and below the body represent the high/low range and are called shadows.
Learning how to read candlestick charts is easy. The price range between the open and close is plotted as a rectangle on the single line. If the close is above the open, the body of the rectangle is green. If the close of the day is below the open, the body of the rectangle is red.
Top 12 most useful Candlestick patterns
Bullish Signals
Engulfing: This pattern consists of two candles. The first day is a narrow range candle that closes down for the day. The second day is a wide range candle that “engulfs” the body of the first candle and closes near the top of the range. Can indicate demand is greater than supply.
Hammer: The stock opened and is pushed lower.
Harami: On the first day you see a wide range candle that closes near the bottom of the range. Then on the second day, there is only a narrow range candle that closes up for the day.
Piercing: This is also a two-candle reversal pattern where on the first day you see a wide range candle that closes near the bottom of the range. On the second day you see a wide range candle that has to close at least halfway into the prior candle.
Doji: The doji is probably the most popular candlestick pattern. The stock opens up and goes nowhere throughout the day and closes right at or near the opening price. Quite simply, it represents indecision and causes traders to question the current trend. This can often trigger reversals in the opposite direction.
Bullish kicker: The stock is moving down and the last red candle closes at the bottom of the range. Then, on the next day, the stock gaps open above the previous days high and close.
Bearish Signals
The bearish patterns are the opposite of the bullish patterns above