Candlestick charts are one of the basic tools used in stock market analysis to present a clear visual view on the price behavior of an asset over time. The four centuries old charts, developed by Japanese rice traders in the 18th century are used extensively today to forecast and speculate market trends by investors instead of relying on random guesses or luck factor.

Candlestick Charts 101

Candlesticks are made up of two parts, the Real Body and the Shadows Candlestick charts adhere to trading periods generally referred to as candles. A candle represents an interval in a chart (minute/daily/hourly). A candlestick consists of a rectangle called the real body which represents the range between opening and closing prices. If the close is above overall then it is denoted as green or white for (bullish nature) and if the closes of that period are in a lower trend, its body color will be red or black(concerned to bear). The “wicks,” These are the lines that extend above and below the real body to indicate high & low prices for a given period.

Parts of Candlesticks

Real Body

Opening and closing prices represented by body And the larger or more significant is an increase in price moves on a long candle, while movement with little change there. When the body is a color, it allows traders to quickly recognize whether or not buy pressure was bullish (color) or bearish(white).


The shadows represent the highest and lowest prices seen within that trading time frame. The upper shadow represents the position of the real body pointing up to high price point, opposite for lower shadows pointing down long sequences. These shadows give you an insight on the range as well as market sentiment for that period of trade.

Basic Candlestick Patterns


A Doji is when opening and closing values are pretty much the same, resulting in an extremely small real body. This formation is often a sign of indecision in the market and generally can signal a reversal if​ forth-coming.

Hammer and Hanging Man

The hammer and the hanging man have a small real body with long lower shadows. The Hammer comes on a downtrend (bullish reversal) and the Hanging Man with an uptrend(sell signal).

Engulfing Patterns

A two-candlestick engulfing pattern When a small bearish candle is followed by large bullish one, this supposedly represents buying or upward selling pressure and the pattern becomes that of a Bullish Engulfing Pattern which may indicate an upcoming downward reversal. On the other hand, if following a small bullish candle there is an even larger bearish one, this gives us the Bearish Engulfing Pattern and marks potential top-in-the-making.

Advanced Candlestick Patterns

Morning and Evening Star

As you see they all are patterns of 3 candles. Morning Star – The Morning Star appears in a tough downtrend and speaks to the potential resurrection of bulls. A long bearish candle, a small-bodied one and then another rounding off with a lengthened bullish candle. An Evening Star signals a bearish reversal which forms an uptrend with long bullish candle, short bodied candle and the last one is also long but closes at red​.

Three Steps White Soldiers And Three Black Crows

The Three White Soldiers pattern is a very strong bullish price action signal that consists of three long-bodied white or green candles in an upward direction. This pattern indicates a clean reversal of an existing downtrend into the uptrend. Bearish counterpart to the Three White Soldiers, The three black crows is a strong reversal pattern with major psychology behind this​.

Applying Candlestick Patterns in Practice

Identifying Trends

The analysis is far better with this pattern chart because it identifies the progress through market trends. They are used by day traders to identify upward or downward trends and as signals for the decision on a trade. Although impossible to predict the future, traders have a slight edge by looking at patterns and overlaying them with other technical indicators.

Support and Resistance Levels

These charts help to identify the resistance and support with ease. Support levels are prices that the asset tends to reach, bottom out on purchases and prevent it from falling further. Resistance levels represent a point that the price tends to rise above (some call it the ceiling). Understanding these levels puts us in position to make tactical trading entries and exits

Volume Confirmation

Volume is key in validating candlestick patterns The volume during the formation of a pattern it applies credibility to the market movement that this pattern is suggesting. For example, the Bullish Engulfing Pattern with high volume has long been recognized as a strong buying interest and thus increases the likelihood of directional change.

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Candlestick charts are an extremely useful method for trading and investing, as it gives a graphical representation of price movements/resource actions throughout the market conditions/sentiments. These can be used in the long run to book both profits and losses if the user wants to sustain in the markets.