The patterns help traders make guesses about where the price might go next. By recognizing these patterns, traders try to predict if the price will go up or down. However, it's important to use these patterns alongside other tools and information to make better decisions.
What Are Candlestick Patterns?
Think of a candlestick as a mini-story about what happened to the price of something (like a stock) over a specific time. Each candlestick shows four key pieces of information:
- Opening Price: Where the price started at the beginning of the time period.
- Closing Price: Where the price ended at the end of the time period.
- High Price: The highest price reached during that time.
- Low Price: The lowest price reached during that time.
What Each Candlestick Shows
- Body: The thick part of the box shows where the price started and where it ended in that time period.
- Wicks: The thin lines above and below the box show the highest and lowest prices reached during that time.
Common Patterns
Here are a few basic patterns you might see and what they could mean:
- Doji
- What It Looks Like: The box is very thin or even just a line with no thick part, and the lines above and below might be long.
- What It Means: The price didn’t go up or down much. It’s like saying, “We’re not sure which way the price is going.” It could mean a change is coming.
- What It Looks Like: A small box at the top with a long line sticking down below it.
- What It Means: If you see this after a price drop, it might mean the price could start going up. It shows that even though the price dropped a lot, it ended up not being so low, and buyers might be coming in.
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- What It Looks Like: Like the Hammer, but appears after the price has been going up. The small box is at the top, with a long line sticking down.
- What It Means: This might mean that after the price has been rising, it could start to drop. It shows that there might be more selling pressure coming.
- What It Looks Like: A small red box followed by a larger green box that completely covers the red one.
- What It Means: This pattern suggests that after a price drop, the price might start to go up. The big green box shows that buyers are taking over.
- What It Looks Like: A small green box followed by a larger red box that completely covers the green one.
- What It Means: This pattern suggests that after a price rise, the price might start to go down. The big red box shows that sellers are taking control.
- What It Looks Like: Three boxes in a row: the first one is big and red, the second one is small (can be red or green) with a gap down, and the third one is big and green.
- What It Means: This pattern appears after a price drop and suggests that the price might start to go up. It’s like a signal that the downward trend could be ending.
- What It Looks Like: Three boxes in a row: the first one is big and green, the second one is small (can be red or green) with a gap up, and the third one is big and red.
- What It Means: This pattern appears after a price rise and suggests that the price might start to go down. It’s like a warning that the upward trend might be ending.
- What It Looks Like: A candlestick with a small rectangle (body) in the middle and long lines (wicks) sticking out above and below.
- What It Means: This pattern suggests that the market is unsure. The price didn’t move much from where it started to where it ended. It might mean a change could be coming, but it's not clear which way.
9. Marubozu
- What It Looks Like: A candlestick with a big rectangle (body) and very small or no lines (wicks) on the ends.
- What It Means: A bullish Marubozu (green) means strong buying. The price moved up a lot and stayed up. A bearish Marubozu (red) means strong selling. The price dropped a lot and stayed down.
- What It Looks Like: A small candlestick completely inside the range of the previous candlestick (the small box is inside the bigger box).
- What It Means: The price is moving sideways or consolidating. It could be preparing for a bigger move, but you need to wait for the next candlestick to confirm the direction.
- What It Looks Like: A candlestick that is bigger and covers the entire range (high to low) of the previous candlestick (the big box covers the small box from the previous period).
- What It Means: This pattern shows that the market might be changing direction. If it follows a trend, it might suggest that the trend could reverse or strengthen.
- What It Looks Like: A Doji candlestick (a small box) that appears between two long candlesticks (one green and one red or vice versa).
- What It Means: This pattern could indicate a reversal. If the Doji is between a long red candle and a long green candle, the price might start going up. If it's between a long green candle and a long red candle, the price might start going down.
- What It Looks Like: Three long green candlesticks in a row, each opening within the body of the previous one and closing higher.
- What It Means: This pattern suggests strong buying pressure. It’s a signal that the price might continue to rise.
- What It Looks Like: Three long red candlesticks in a row, each opening within the body of the previous one and closing lower.
- What It Means: This pattern suggests strong selling pressure. It’s a signal that the price might continue to fall.
- What It Looks Like: A long green candlestick followed by a few small red candlesticks, then another long green candlestick that closes higher than the first one.
- What It Means: This pattern suggests that the uptrend (price going up) will continue. The small red candles show a brief pause or pullback in the uptrend.
- What It Looks Like: A long red candlestick followed by a few small green candlesticks, then another long red candlestick that closes lower than the first one.
- What It Means: This pattern suggests that the downtrend (price going down) will continue. The small green candles show a brief rebound or pause in the downtrend.
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