The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure. Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.
Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture.
After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness. Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive.
After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline, a long black candlestick can indicate panic or capitulation. Even more potent long candlesticks are the Marubozu brothers, Black and White. Marubozu do not have upper or lower shadows and the high and low are represented by the open or close. A White Marubozu forms when the open equals the low and the close equals the high.
This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade. The upper and lower shadows on candlesticks can provide valuable information about the trading session.
Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlesticks with long shadows show that prices extended well past the open and close. Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, bidding prices higher, but sellers ultimately forced prices down from their highs.
This contrast of strong high and weak close resulted in a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session; the strong close created a long lower shadow.
Candlesticks with a long upper shadow, long lower shadow, and small real body are called spinning tops. One long shadow represents a reversal of sorts; spinning tops represent indecision. The small real body whether hollow or filled shows little movement from open to close, and the shadows indicate that both bulls and bears were active during the session.
Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.
Doji represent an important type of candlestick, providing information both on their own and as components of a number of important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary, with the resulting candlestick looking like a cross, inverted cross or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation.
Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.
Different securities have different criteria for determining the robustness of a doji. Determining the robustness of the doji will depend on the price, recent volatility, and previous candlesticks. Relative to previous candlesticks, the doji should have a very small body that appears as a thin line. Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. However, a doji that forms among candlesticks with long real bodies would be deemed significant.
The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near.
Doji alone are not enough to mark a reversal and further confirmation may be warranted. After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrend or long white candlestick.
Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and doji, traders should be on the alert for a potential evening doji star. After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end.
Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick's open. After a long black candlestick and doji, traders should be on the alert for a potential morning doji star. Long-legged doji have long upper and lower shadows that are almost equal in length. These doji reflect a great amount of indecision in the market.
Long-legged doji indicate that prices traded well above and below the session's opening level, but closed virtually even with the open. After a whole lot of yelling and screaming, the end result showed little change from the initial open. Dragonfly doji form when the open, high and close are equal and the low creates a long lower shadow. Dragonfly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.
The reversal implications of a dragonfly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support , a dragonfly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance , the long lower shadow could foreshadow a potential bearish reversal or top.
Bearish or bullish confirmation is required for both situations. Gravestone doji form when the open, low and close are equal and the high creates a long upper shadow. Gravestone doji indicate that buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level and the session low. As with the dragonfly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation.
Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish reversal.
After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. A candlestick depicts the battle between Bulls buyers and Bears sellers over a given period of time. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The bottom intra-session low of the candlestick represents a touchdown for the Bears and the top intra-session high a touchdown for the Bulls.
The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, I have narrowed the field to 6 types of games or candlesticks :. Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks and bar charts cannot tell us which came first.
With a long white candlestick, the assumption is that prices advanced most of the session. The first sequence shows two small moves and one large move: a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. If it is followed by another up day, more upside could be forthcoming.
The doji is within the real body of the prior session. The implications are the same as the bearish harami. Let's look at a few more patterns in black and white, which are also common colors for candlestick charts. This pattern starts out with what is called a "long white day.
The fifth and last day of the pattern is another long white day. A slight variation of this pattern is when the second day gaps up slightly following the first long up day. When that variation occurs, it's called a "bullish mat hold. The pattern starts out with a strong down day. The pattern completes when the fifth day makes another large downward move. It shows that sellers are back in control and that the price could head lower.
Candlesticks help traders to gauge the emotions surrounding a stock, or other assets, helping them make better predictions about where that stock might be headed. Alan Northcott. Atlantic Publishing Group. Technical Analysis Basic Education. Advanced Technical Analysis Concepts. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Options Trading. Futures Trading.
Technical Analysis. Table of Contents Expand. Candlestick Components. Candlestick vs. Bar Charts. Basic Candlestick Patterns. Bearish Engulfing Pattern. Bullish Engulfing Pattern. Bearish Evening Star. Bearish Harami. Bullish Harami. Bearish Harami Cross. Bullish Harami Cross. Bullish Rising Three. Bearish Falling Three. The Bottom Line. Key Takeaways Candlestick charts are used by traders to determine possible price movement based on past patterns.
Candlesticks are useful when trading as they show four price points open, close, high, and low throughout the period of time the trader specifies. Many algorithms are based on the same price information shown in candlestick charts. Trading is often dictated by emotion, which can be read in candlestick charts.
Here are many of the most popular candlestick chart patterns:. Image courtesy of JB Marwood. What is a Pin Bar Candlestick Pattern? Posted By: Steve Burns on: June 01, Enter your email address and we'll send you a free PDF of this post. Share this:. Share 0. Next Best Trading Books on Psychology. What is a Dragonfly Doji? November 21, Find out more about candlestick charts, what they are, how to read them, and how to use them to become a better trader.
A candlestick is a single bar on a candlestick price chart, showing traders market movements at a glance. Patterns emerging on candlestick charts can help traders to predict market movements using technical analysis. They were developed more than years before the bar chart was invented in the West! Candlestick charts can be set to different time periods depending on what is most useful for the trader. Short-term traders will tend to focus on the lower time frame candlesticks when they are looking for a trade entry.
This could further suggest a trend reversal, helping you decide whether to buy or sell a binary option contract. Following an upward market move, it may signal the market is about to turn bearish. Again, try using support and resistance levels or Fibonacci bands to confirm your ideas. This candlestick pattern can show selling pressure being exhausted, and buyers preparing to take over. It shows that a downtrend could be on the way — a bearish hanging man offers the strongest signal.
The bullish belt hold pattern is a signal that a downtrend may be reversing.