Introduction to Candlestick Charting

(Introduction to Candlestick Charting)

Candlestick charting was invented in Japan. Candlestick charts are the best and easiest to use compared to all other charts.

Various signals are obtained by using a single candle or a combination of several candles. Candlestick charts present the fluctuations in the market in a very good way. If you use candlesticks regularly, you will not find any other chart practice as fascinating as it is.

Indications of upcoming bullish or bearish trend can also be taken from the structures formed at various levels. We have discussed this topic briefly here.

By using two or more candles it is possible to get an idea of ​​whether the current uptrend or downtrend will continue.

Most charting software includes some type of candlestick

BULL CANDLE 

BEAR CANDLE 

There are three main divisions in candlesticks:

1. Real body

2. Upper Shadow 

3. Lower Shadow 

Real Body:

•The middle part of the candlestick is called the real body.

•The size of the real body depends on the amount of volatility on any given day.

•If the price closes with limited rise or fall on the second day compared to the previous day, then a small candle is formed.

. If the price closes with a greater rise or fall on the second day compared to the previous day, a long candle is formed.

• Mostly white, grey or blue colour candles are used for uptrend direction. For downtrend, black or red colour is used. It is a matter of personal choice.

• If there is almost no fluctuation in the prices i.e. very little or the close of the second day is above the closing price of the previous day, then the candle that is formed is called a Doji.

Upper Shadow:

This is a line drawn above the real body, indicating the highest price of that day.

Lower Shadow:

This is the line formed below the royal body which shows the lowest price of that day.

Types of Candles:

Now let us try to understand the different types of single candles.

• Log Day Candle

• Short day candle

Long Day Candle:

There is a greater difference in the closing price on this day compared to the previous day. This can be said by looking at the candle. This candle is long in structure.

Short Day Candle:

On this day the price closes with a very small difference compared to the previous day which is clearly visible on the candle. It consists of very small candles.

Types of Candlestick Pattern:

Doji:

Holly Swap occurs when there is no difference in the opening price and closing price or the opening price and closing price are the same. Doji is known as a sign of indecision and if the volume has dried up then Doji can give a stronger signal at that time.

Types of Doji:

Gravestone Doji:

It indicates failure of efforts. It is a bearish candle. It is a rally during the day.

Dragonfly Doji:

This is a strong bullish candle which indicates that the bearish trend is about to end and the bullish trend is about to begin.

Long-Legged Doji:

Log legged candles have long candles in both up and down direction. Which are mostly of equal size. This type of candle shows a greater amount of indecision in the market and indicates trend reversal in a short period of time.

• After closing with a strong gain on the second day, the price again opens the next day showing panic and closes with a rise or fall in the amount not close to the open price. This candle is called a log legged doji. That is, a doji with long legs.

• This pattern indicates uncertainty prevailing among the bullish and bearish players. You can see that the prices seem to remain stuck in a limited range for the next few days. So, until the uncertainty is resolved,One should remain calm until the clouds of darkness clear. One should buy or sell only after a clear trend is established. To know the possibility of an uptrend or downtrend, one should take a decision by taking other indicators along with what the medium to long term trend shows.

Star:

Like the Doji, the Star also signals uncertainty.

Types of Star:

Morning Star:

This is a bullish candle.

•When a bearish trend establishes, it consists of the formation of a bearish candle that follows a bearish trend that continued on the previous day.

• On the second day the price opens in the downward direction in the gap and the price closes in a limited range on that day. The closing price of the second day, whether with a fall or a rise,

•On the third day the price opens with a gap up and closes with a good gain then a long bullish candle is formed.

• The close appears near or above the midpoint of the previous day’s candle.

Evening Star:

• This is a bearish candle.

• In this, the first candle starts with a bullish trend followed by a long bullish candle.

•second day the price opens in the upward direction in the gap but closes after moving in a very small range. The closing price of the second day may have risen or fallen but this price is higher than the closing price of the first day.

•On the third day, the price falls drastically. Therefore, the candle of that day is a long bearish candle. The close of the third day is in the middle or below the close of the first day's candle.

•With its help you get advance information about the coming recession.

• It is seen moving ahead in the uptrend after getting the trend reversal signal.

Shooting Star:

It is a reversal pattern and a short candle with an upper shadow at least twice as long as the main body.

• Colours do not have much importance in this candle. But it is said that if a black candle i.e. a bear candle is formed then a stronger signal is given.

•Looking at this candle, it appears that after opening the price rises according to the strong trend of the next day, but the price is unable to touch the high level of that day and closes with a small rise or fall.

• This is considered a bearish signal. Even if the price closes with a slight increase, it can be said that the increase will not last because the grip of the bulls is getting weaker and the grip of the bears is getting stronger. Now it can be said that the bearish situation will be established. After the price opens in the bearish direction the next day, it can be said that the bearish trend can move forward and selling can be done.

Hammer and Hanging Man:

The hammer is a short candle with a long lower shadow.

• It means that after opening the price on that day, it shows a big fall and then recovers and manages to close near the opening price.

• The colour of the candle does not matter in this. But now if a white candle i.e. a bullish candle is formed then it is considered very good.

Note:

• How much the price will rise after the hammer is formed depends on the state of various indicators and the established trend of medium to long term. A forecast cannot be made on the basis of the price forming the hammer alone. It only gives you an indication of trend reversal.

• A Hunger candle is formed, which means that the bearish players have failed in their attempt to make the price more bearish and the bullish players are getting stronger.

However, the time horizon in which the hammer candle is formed usually gives good results. Buying after getting confirmation is definitely profitable.

Piercing Line:

• This is a trend reversal pattern. It indicates the end of an established bearish trend and the beginning of an uptrend.

• In this pattern a long bearish candle is formed on the first day and a white bullish candle is formed on the second day.

• On the second day the price opens very low and the closing price is in the range of the previous day's candle. But it is slightly higher than the midpoint of the first day's candle. Which you can see in the figure. If this type of candle formation is seen then one should go bullish.

Many times the opening price higher with a gap on the third day gives you complete confirmation.

Dark Cloud Cover:

• This is a trend reversal pattern. It gives you an indication of the end of the uptrend and the beginning of a downtrend.

• In this canal pattern, a long white candle is formed on the first day and a black bearish candle is formed on the second day.

•The open price of the second day is higher than the high of the first day and the close low is also lower than the middle part of the range of the first day candle.

• When you see such a structure being installed then you should be ready to sell and sell only after getting confirmation.

•Confirmation is counted on the third day's lower opening price with a gap.

Bullish Engulfing Pattern:

• This is a trend reversal pattern. It indicates the end of a bearish trend and the beginning of an uptrend. In this pattern, a small black candle is formed on the first day which is bearish.

• After this, a long white candle forms which completely engulfs it. A long white candle means that the bullish momentum is overpowering the bearish momentum and preparations are being made for a trend reversal.

• A strong opening on the third day gives you a confirmation of an uptrend. If the long candle is able to completely engulf the shadows of the previous day's bearish candle, it is considered stronger signal.

Bearish Engulfing Pattern:

• This is a trend reversal pattern. It indicates that the uptrend is about to end and the downtrend is about to begin.

• In this pattern, a small white bullish candle is seen forming on the first day. A long black bearish candle forms on the second day which backs the previous day's candle.

• A long black candle means a strong trend reversal is taking place.

• When you see the formation of this candle then you should be ready to take a downtrend and if you have bought then you should exit by selling.

• A lower opening price on the third day gives you a bearish signal.

Note:

• First of all, you should get signals with the help of candlestick patterns. Then if you use other indicators along with it, you can get a prior signal of bullish or bearish trend. After this, with the help of indicators, you can hold the bullish or bearish position for some time.

• If you want to avoid complexity, then first learn the signals of candle formations, after that take the signals of the indicators along with you and estimate how much the uptrend or downtrend can proceed as per the signals of any indicator.

• Hold your position until you get further signals one after the other.

• As the gear of a vehicle increases, its speed increases and in the same way triggers are received in the indicators, similarly momentum is seen increasing in the share prices. Take advantage of it in that way.