UNDERSTANDING CANDLESTICK PATTERN

WHAT IS A CANDLESTICK? 

A candlestick depicts the battle between Bulls (buyers) and Bears (sellers) over a given period of time. Before we get down to the nitty-gritty, (spoiler alert: awesome candlestick formation images are coming your way) it’s important for you to understand what a candlestick actually is.

 No, we’re not talking about the kind you pick up from that fancy candle store to set the mood on date night. We’re talking about Japanese Candlesticks — the market signal that shows the battle between the Bulls (buyers) and the Bears (sellers) over a certain amount of time. 

Why do you need to know Candlesticks like the back of your hand? Because knowledge could give you the upper hand when the Bulls and the Bears are in the middle of a market smackdown. Candlestick formations allow you to find setups, determine market direction and identify optimal entry and exit points that could help you execute profitable returns consistently in your trades.

Understanding the Language of the Market

 Bulls, Bears, buyers, sellers…is anyone else confused? Don’t get your trendlines in a bunch; it’s easier than you think. Now that you know what a candlestick is, we can talk about how they essentially determine how you attack the market. At first glance, you’ll notice two types of candlesticks: 

Clear as black and white, wouldn’t you agree? Now that you have this part down pat, you’re ready to learn about the Bulls and the Bears. 

What can their formations tell us? 

The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

BULLISH

Bullish candlesticks indicate the market is moving in an upward trend. An easy way to remember this is by picturing an actual bull: bulls’ horns go up just like the market will when you spot this type of candlestick. 

So, what exactly are you looking for? Keep an eye out for those hollow or light-colored candlesticks we were talking about earlier. 

Once you have your bullish candle, take a look at the body. The bigger the body, the bigger the upward price movement for that specific point in time. Ideally, you want to identify a full-bodied candlestick with small wicks. Now that you’re a certified market matador, here are a couple of bullish formations you could find in your charts 

BEARISH

Bearish candlesticks indicate the market is moving in a downward trend. Need an easy way to remember this? Think of a bear trying to swat down a bee hive for some honey; only you’re a trader and you’re trying to swat some pips into your P/L statement to help you see returns sweeter than honey! 

Now, what makes a candlestick bearish? You guessed it: filled or dark-colored candlesticks. Once you spot one, make sure it follows the same body-to-wick ratio that we talked about for bullish candlesticks. 

The body rule still holds true for bearish candlesticks except this time, we’re in a downward price movement. Guess what they say is true: the bigger they are the harder they fall. Here are a few of bearish formations that frequently pop up on the charts