When you open a stock market chart you can see many candles in red and green color, but have you ever tried to evaluate those candles? What is that candle means? Here we are going to learn the basics of technical analysis using candle stick patterns.
Candlestick analysis
What is a candlestick chart?
It is a representation of a stock price movement chart that comprises small units called candlesticks. It contained detailed information about the price movement. It helps to predict the movement of stock whether it goes upward movement or downward movement.
In analyzing the stock market we need to understand the movements in the chart. there is a huge limitation for line charts in the stock market. That is the reason most of them started using Candles charts.
What is a Candlestick?
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It represents the price activity in the stock market in the different time frame
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It contains OHLC( open price, High price, Low price, Close price) in the different time frame
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If the candle length is long, it’s stronger in nature
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Depending on the movement in the stock market it has different colors in the Bullish and bearish markets.
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Bullish candles are represented by green color and bearish candles represent by red color
Bullish Candlestick and bearish candlestick
Bullish Candle
It mainly represents the buying activity or upward movement of stocks for a particular time frame. The closing price will be higher than the opening price.
Bearish Candle
It mainly represents the selling activity or downward movement of stocks for a particular time frame. The closing price will be lower than the opening price.
Different types of candlestick pattern
Single candle stick pattern
Candle occurs in different ways from identifying the candle we can predict hats going to happen. Here we have some single candlestick pattern that allows for predicting the market movement.
paper umbrella
paper umbrella is a single candlestick pattern and it helps the traders to set up directional trades. The name of the candle changes depending on the place it occurs. Usually, it will have a small upper body with a long lower show. The lower shadow of this candle is twice the body that occurred.
- Hammer
In this candle, if the paper umbrella occurs at the bottom of the downward trend then it is called a Hammer. It mainly indicates the trend reversal to the bullish trend. Buyers will be active at this stage.
- Hanging man
In this candle, if the paper umbrella occurs at the top of the upward trend then it is called a hanging man. It mainly indicates the trend reversal to a bearish trend. Selling activity will be more in this area.
Shooting star
A shooting star is a single candlestick pattern that also helps traders to set up directional trades. It is known as a bearish candle pattern so it will appear at the top of a bullish trend. It also has a small body with a long upper shadow. The size of the upper shadow will be twice the body that occurred. it will be more accurate when the candle appears at the top of the bullish trend with a red color.
Marubozu
Ithe name originated from Japan word. This candle does not have an upper shadow or lower shadow. marubozu has a real strong body. It can visible anywhere in that chart and it mainly allows you to predict a trend reversal.
There are two types of marubozu one is bullish marubozu and second is bearish marubozu.
- Bullish marubozu
In bullish marubozu open = Low and close = high. A bullish marubozu shows that there is a huge buying activity happening in the stock market.it indicates that the stock is bullish.
- Bearish marubozu
In bearish marubozu Open = High and close = Low. Bearish marubozu indicates that there is a huge selling activity happening in the stock market. It indicates the stock is bearish.
When there is a presence of marubozu mostly indicates that a trend reversal is going to happen
Spinning tops
Spinning tops mostly occur when the market is Indecision or in the consolidation stage. It also mainly indicates the trend reversal candle. In this candle real body of the candle will be small and the upper shadow and lower shadow are bigger and it will be almost equal. Since its real body is the small color of the candle does not matter at all.
Doji
Doji candles are very similar to spinning tops except it doesn’t have a real body. In this candle open and close are the same which is the reason it doesn’t have a real body. A Doji candle indicates that there is indecision or consolidation happening in the market. It can be considered a trend reversal indicator.
Different types of dogs are present
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Standard Doji
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long legged Doji
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dragonfly Doji
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gravestone Doji
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4 price Doji
Conclusion
in the above, we have learned the major single candlestick pattern and how the candle works in different areas. The one thing you need to remember is never to take a trade based on a candle indication. If you want to become a successful trader you need to understand patterns indicators and price action strategy as well
always take a trade when you have more confirmation from another indicator as well. Candles give an indication of which may or may not work at some time. Don’t completely depend on this. We will be covering price action methods and indicator analysis also, by combing all you can take a good trade
here we have covered single-candle chart patterns next we will be covering two-candle and three-candle chart methods
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