What is a Candlestick?

What is a Candlestick?

Japanese candlesticks are a popular tool in trading, formed using the open, high, low, and close prices of a chosen time frame.

• Bullish Candlesticks: When the close is above the open, the candlestick is considered bullish, indicating that the market is rising during this period. Bullish candlesticks are often displayed as white, but the color can be customized. The key elements are the open and close prices.
• Bearish Candlesticks: When the close is below the open, the candlestick is bearish, suggesting that the market is falling during this session. Bearish candlesticks are typically shown in black, though other colors can be used.

Components of a Candlestick

• Real Body: The filled part of the candlestick, representing the range between the open and close.
• Shadows (Wicks): The thin lines above and below the body. The upper shadow represents the high, and the lower shadow represents the low.

Candlestick Body Sizes

Candlesticks can have varying body sizes:

• Long Bodies: Indicate strong buying or selling pressure. A long bullish body (close above open) signifies that buyers are in control, while a long bearish body (open above close) shows that sellers dominate the market.
• Short Bodies: Suggest minimal buying or selling activity, indicating indecision in the market.

Candlestick Shadows (Tails)

Shadows provide valuable insights into the trading session:

• Upper Shadows: Indicate the session’s high.
• Lower Shadows: Indicate the session’s low.

Candlesticks with long shadows reveal significant trading activity beyond the open and close prices.

• Long Upper Shadow: Suggests that buyers pushed prices higher, but sellers drove them back down near the open.
• Long Lower Shadow: Indicates that sellers forced prices lower, but buyers brought them back up near the open.

Candlestick Patterns

Candlestick patterns are powerful tools in trading, known for their simplicity, ease of identification, and profitability. Research confirms their high predictive value.

With over 20 years of trading experience, I can attest to the effectiveness of candlestick patterns. While no system guarantees 100% wins, understanding these patterns can significantly improve your trading decisions.

Candlestick patterns are the market’s language. Mastering them is akin to learning a new language in a foreign country. It allows you to understand market dynamics and trader behavior, helping you make informed entry and exit decisions.

In the following sections, I will introduce the most important candlestick patterns. Focus on their anatomy and the psychology behind their formation, as this will enhance your ability to identify patterns and anticipate market movements.

By mastering these skills, you’ll be prepared to understand and apply advanced trading strategies and tactics effectively.