Udemy Mastering Candlestick Charting Candlestick charts are a type of financial chart used to visualize price movements of an asset over a specific period. Each candlestick represents the open, high, low, and close prices of the asset within the given timeframe. The body of the candlestick is filled or hollow, indicating whether the closing price was higher (bullish) or lower (bearish) than the opening price. The length of the upper and lower shadows, also known as wicks, provides additional information about the price’s high and low points during the period.
The Basics of Candlestick Patterns
Candlestick patterns are formed by one or more candlesticks and are used to identify potential market trends and reversals. Some common candlestick patterns include:
Bullish Candlestick Patterns
These patterns suggest a potential bullish trend continuation or reversal and include the Hammer, Bullish Engulfing Pattern, Bullish Harami Pattern, Morning Star, and Three White Soldiers.
Bearish Candlestick Patterns
These patterns indicate a potential bearish trend continuation or reversal and include the Shooting Star, Bearish Engulfing Pattern, Bearish Harami Pattern, Evening Star, and Three Black Crows.
Single Candlestick Patterns
Single candlestick patterns are formed by a single candlestick and provide valuable insights into market sentiment. Some important single candlestick patterns are:
A Doji is formed when the opening and closing prices are nearly the same, resulting in a short or nonexistent body. It suggests indecision in the market.
The Hammer is characterized by a small body at the upper end of the candlestick, with a long lower shadow. It signals a potential bullish reversal.
The Shooting Star has a small body at the lower end of the candlestick, with a long upper shadow. It indicates a potential bearish reversal.
The Spinning Top has a small body with upper and lower shadows of similar length, indicating indecision between buyers and sellers.
Dual Candlestick Patterns
Dual candlestick patterns consist of two consecutive candlesticks and often provide stronger reversal signals. Some important dual candlestick patterns are:
Bullish Engulfing Pattern
The Bullish Engulfing Pattern occurs when a small bearish candlestick is followed by a larger bullish candlestick that engulfs it. It suggests a bullish reversal.
Bearish Engulfing Pattern
The Bearish Engulfing Pattern is the opposite of the Bullish Engulfing Pattern. It indicates a bearish reversal after a small bullish candlestick is engulfed by a larger bearish one.
Bullish Harami Pattern
The Bullish Harami Pattern features a small bearish candlestick within the body of a previous larger bearish candlestick, suggesting a potential bullish reversal.
Bearish Harami Pattern
The Bearish Harami Pattern is the opposite of the Bullish Harami Pattern. It suggests a bearish reversal when a small bullish candlestick appears within the body of a previous larger bullish candlestick.
Triple Candlestick Patterns
Triple candlestick patterns consist of three consecutive candlesticks and are considered even more reliable in signaling trend reversals. Some important triple candlestick patterns are:
The Morning Star is formed by a large bearish candlestick, followed by a small candlestick, and then a large bullish candlestick. It suggests a bullish reversal.
The Evening Star is the opposite of the Morning Star. It indicates a bearish reversal after a large bullish candlestick, a small candlestick, and then a large bearish candlestick.
Three White Soldiers
The Three White Soldiers is a strong bullish pattern formed by three consecutive large bullish candlesticks, indicating a potential continuation of an uptrend.
Three Black Crows
The Three Black Crows is a strong bearish pattern formed by three consecutive large bearish candlesticks, suggesting a potential continuation of a downtrend.