What are
Candlesticks ?
Learn how to differentiate candlestick patterns in trading and how to use candlesticks to your advantage in your strategy.
Candlesticks are a technical analysis tool used in the financial market to represent the price action of an asset over a given period of time. Although they may appear simple at first glance, candlesticks offer a wealth of information about market psychology and price trends.
These small but powerful graphical representations play a critical role in decision making in the financial markets. In this guide, we will explore the different patterns you may encounter, and how they can help you on your journey as a trader.
Candlestick Patterns
1.Doji: The Doji is a type of Japanese candlestick that indicates indecision in the market. It is formed when the opening and closing price is practically the same, creating a candlestick with a small or even no shadow.
2.Bullish Candlestick: This candlestick is characterized by a solid body that forms when the closing price is significantly higher than the opening price. It indicates buying pressure and positive sentiment in the market.
3.Bearish Candlestick: Contrary to the bullish candlestick, the bearish candlestick has a solid body where the closing price is significantly lower than the opening price. This suggests selling pressure and negative sentiment in the market.
4.Hammer Candlestick: This candlestick has a small upper shadow and a body at the bottom of the candlestick. It is considered a bullish reversal pattern, as it suggests that sellers failed to maintain control and buyers took over.
Candlesticks for Beginners
If you are new to the world of candlesticks, it is essential to start with the basic patterns. These patterns will help you understand the simpler signals that candles can provide, such as the “Doji” candlestick pattern, which indicates indecision in the market.
Candlesticks Without Wick vs With Wick
Candlesticks are divided into two key parts: the body and the wick (or shadow). Candlesticks without a wick, such as the “Marubozu,” indicate strong momentum in price direction, while candlesticks with a wick, such as the “Harami,” signal possible reversals in trend.
Candlesticks in Trading Strategy
Once you are familiar with the basics of candlesticks, you can incorporate them into your trading strategy. Some traders use bearish Japanese candlestick patterns to identify selling opportunities, while others look for engulfing Japanese candlesticks to confirm trend changes.