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Candlestick (Japanese candlestick chart/ K-line) helps in identifying the trading pattern, which assists technical analysts in setting up their trades. The candlestick patterns are mainly used to foresee the succeeding direction of the price fluctuation of a derivative, currency or security. These candlestick patterns are created by assembling two or more candlestick in a particular way. In some cases powerful signals can be provided from just a single candlestick. Like a bar chart, candlestick constitutes all four major segments of information for that day: open and close in the thick body, high and low in the candle wick. With the massive packed information, it represents trading patterns across a short duration. Usually, a few days/ a few trading sessions. Visually, candlesticks are similar to box plots.
In this article we have provided important information regarding candlesticks, how to read candlestick, its types and the nifty candle chart.
- Generally, candlesticks are the graphical representation of price movements in a given time period.
- Commonly, they are found by the opening, closing, high and low prices of financial contrivance.
- A filled candlestick is drawn when the opening price appears above the closing price (Red or Black).
- In case if the closing price comes above the opening price, then a green/ hollow candlestick is drawn (white with black outline).
- The hollow or filled part of the candle is called body (real body). This body can be long, normal or short based on its proportion to the lines below or above it.
- The above and below lines can be called tails, shadows or wicks, which shows high and low price ranges within a given period of time. Although, all candlesticks are not shadows.
The top five Bullish candlestick patterns are given below;
Hammer is a reverse type bullish candlestick pattern that appears at the end of a downtrend. This pattern is formed when the open and low prices become almost the same. The Bullish candlestick must include a lower shadow that is twice the length as of the real body. While searching for this pattern, we should keep in mind that the latest is a downtrend. Bullish pattern is developed when the real body is small along with a long lower shadow which indicates that it tries to put down the prices but fails to do so. Only after hammer confirming the bullish reversal, a bullish candlestick is developed.
2. Bullish Engulfing
Bullish Engulfing candlestick pattern represents bullish reversal that indicates increase in the buying pressure. They signify a reversal from slowdown as more and more buyers enter the market and raise the prices after a long downtrend. The bullish engulfing candlestick pattern has two candles where the second green candles fully engulf the body of the preceding red candle. However, while trading bullish engulfing patterns one should keep in mind that the primary trend should be a downtrend. Engulfing candles assist trades in pointing the latest reversals that signifies trend prolongation, and also helps traders with an outlet signals. Which pillar the continuation of proceeding trends.
3. The Piercing Pattern
This candlesticks pattern provides us with powerful bullish reversal signals and it is developed near to the support levels at the bottom of a downtrend. The piercing candlestick pattern is created from two candlesticks: the Bearish candlestick and the Bullish candlestick. The bearish candlestick must have a massive real body and the bullish candlestick must be below the low of the preceding candlestick, and it should close above the center of the real body of the former candlestick.
4. The Three White Soldiers
The three white soldiers is a bullish candlestick pattern that appears at the bottom of a downtrend which indicates a bullish reversal. This candlestick pattern includes three long bullish candlesticks that are green in color and do not pose lengthy shadows. Strong buying pressure has made the bullish candlestick pattern to uptrend reversal. However, all three candlesticks are open among the real body of the preceding candles in the pattern.
5. The Morning Star
It is a triple bullish candlestick pattern that represents a bullish reversal. The morning star is formed at the terminal of a downtrend, it provides us a warning that the downtrend is proceeding to reverse to an uptrend. This bullshit candlestick pattern has three candles: I) Bearish candlestick II) Either Bullish or Bearish candlestick III) Bullish candlestick. While trading with morning star candlestick, the primary trend should be downtrend.
Candlesticks aid traders in measuring the emotions encircling a stock or some other assets, assisting them to resolve a best prediction about where the stock might be directed. As centuries ago, Japanese traders came upon investor’s emotions regarding the trading of an asset or stock have a large effect on asset variations. One should be aware that candlestick patterns are often used along with other technical measures. As in some cases the signals formed by these patterns are false. Hope this article was informative.