Candle Stick Patterns

Candlestick patterns are a form of technical analysis used by traders to predict future price movements based on past candlestick formations. Candlestick charts display the open, high, low, and closing prices of a security over a specific period.

This article focuses on a daily chart, wherein each candlestick details a single day’s trading. It has three basic features:

• The body, which represents the open-to-close range
• The wick, or shadow, that indicates the intra-day high and low
• The colour, which reveals the direction of market movement – a green (or white) body indicates a price increase, while a red (or black) body shows a price decrease

Hammer

The hammer candlestick pattern is formed of a short body with a long lower wick, and is found at the bottom of a downward trend.

Bullish Engulfing

The bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that is completely engulfed by a larger green candle.

Shooting Star

The shooting star is the same shape as the inverted hammer, but is formed in an uptrend: it has a small lower body, and a long upper wick.

Doji

When a market’s open and close are almost at the same price point, the candlestick resembles a cross or plus sign – traders should look out for a short to non-existent body, with wicks of varying length.