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Lesson 4 – Candlesticks
Written on 9 November 2008 by Staff
What are Candles or CandleSticks?
Candles are figures that have information regarding the movement of prices of the Pairs during a certain time frame. Each candle has:
Each candle repreents 24 hours on a daily chart,
Each candle represents 60 minutes on a 1 hr chart,
Each candle represents 240 minutes on a 4 hr chart,
You get the idea…
A Black or Green candle means that in the period being evaluated, the market gained value.
A White or Red candle means that in the period being evaluated, the market lost value.
The main objective of candlestick patterns is to identify potential market reversals or other price patterns BEFORE they happen, or as close s possible.
When I talked about price action, THIS IS IT. You may surely like other indicators, but I will recommend that you ALWAYS confirm your signals being generated by indicators with candlestick patterns.
Which CandleStick Patterns You Ask?
Here are the main ones:
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Bullish Engulfing
Pattern usually appearing after a strong downtrend. Indicates a possible reversal to the upside. |
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Bearish Engulfing
Pattern usually appearing after a strong uptrend. Indicates a possible reversal to the downside. |
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Basic Bullish Reversal Pattern or Piercing Pattern
Means that Sellers are losing strength and that a reversal to the upside could occur any time. |
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Basic Bearish Reversal Pattern or Cloud Cover
Means that Sellers are losing strength and that a reversal to the downside could occur any time. |
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Shooting Star
Means that Buyers cannot sustain new highs and that a reversal to the downside could occur any time. |
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Evening Star
This is a Top Reversal Signal to the downside after market reaching new highs. |
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Morning Star
This is a Bottom Reversal Signal to the upside after market reaching new lows. |
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Hammer / Hanging Man
This is a Reversal Pattern that usually shows up after very strong trends. Pattern is considered a hammer after a strong downtrend, and a hanging man after a strong uptrend. |
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Harami
This an occure with the long body being bullish and the second candle being bearish or the other way around. In the image here, there is a bearish reversal pattern. |
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Doji / Double Doji
This is not a reversal pattern itself, but does mean indecision in the market. A doble doji just confirms even more indecision. Be alert, beacause there could be a stron trend or break comming. |