Candlestick Patterns in Technical Analysis

Candlestick charts are one of the most popular tools for visualizing and analyzing stock price movements. Each “candle” provides insight into market sentiment during a specific time period and helps traders predict future price direction. What is a Candlestick? A candlestick shows four key pieces of data for a specific time frame: • Open price • Close price • High price • Low price The body shows the range between open and close. The wicks (or shadows) show the highs and lows. Common Single Candlestick Patterns 1. Doji o Open and close prices are nearly equal. o Indicates indecision in the market. o Could signal a reversal if seen after a strong trend. 2. Hammer o Small body at the top with a long lower wick. o Appears after a downtrend, suggests potential bullish reversal. 3. Inverted Hammer o Small body at the bottom with a long upper wick. o Bullish signal, especially after a decline. 4. Shooting Star o Like an inverted hammer but appears after an uptrend. o Indicates potential bearish reversal. Common Multiple Candlestick Patterns 1. Bullish Engulfing o A small red candle followed by a large green candle that fully "engulfs" the first. o Indicates strong buying pressure and potential reversal upward. 2. Bearish Engulfing o A small green candle followed by a large red candle engulfing it. o Suggests increasing selling pressure. 3. Morning Star o Three candles: a large red, a small-bodied candle (indecision), and a large green. o Strong bullish reversal signal. 4. Evening Star o Opposite of Morning Star. o Appears at the top of an uptrend and signals bearish reversal. 5. Three White Soldiers o Three consecutive long green candles. o Strong bullish signal after a downtrend. 6. Three Black Crows o Three long red candles. o Indicates strong bearish momentum.