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Basics of Candlestick Patterns

Discussion in 'Candlestick Patterns' started by Kaitlin, Oct 4, 2015.

  1. Kaitlin

    Kaitlin Forum Member

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    Ins & Outs Of Candlestick Patterns
    Candlestick Patterns Basics

    In candlestick patterns basics, we’re going to start right at the beginning with how to interpret candles.
    Each candle represents what price has done over a specific period of time. So,
    for example, let’s say you are looking at a 1-hour price chart; each candle will
    represent one hour and will show:
    • Where price was at the start of that hour
    • The lowest price reached during that hour
    • The highest price reached during that hour
    • Where price was at the end of that hour
    The Most Basic Candlesticks

    The simplest candles are the bullish candle and the bearish candle.

    upload_2015-10-4_9-36-16.png

    A bullish candle represents buyers overpowering sellers and is indicative of;
    yes you guessed it, bullishiness.

    And in a similar way a bearish candle represents selling activity being greater
    than buying activity and demonstrates bearishness.

    Single Candle Patterns

    Dojis, hammers and shooting stars

    Next to the bullish candle and bearish candle the doji candle is probably the
    one most traders will be familiar with.

    A doji candle occurs when the close of a candle is the same price as the open.
    There are two main types of doji candles. The first type indicates indecision in
    the market. The upper shadow and lower shadow will be of similar length and
    quite often you will get a few of these dojis one after the other.

    Here are a few examples of the indecision style of doji candle:

    upload_2015-10-4_9-37-13.png

    What is happening with this type of doji is that buyers and sellers are in
    balance. The traders buying and the traders selling have currently reached a
    price where they are in agreement.

    The other type of doji is what is called the ‘reversal’ doji; here is what this type
    of doji looks like:

    upload_2015-10-4_9-39-5.png

    So what is happening here? For the bullish reversal doji we are seeing sellers
    taking price lower and then buyers overpowering these sellers and taking price
    higher. This is a sign of bullishness as price tried to go down, could not stay
    down, and then was pushed back higher again.

    The same is true for a bearish reversal doji; buyers took price higher and then
    seller came in and forced price back down again – a bearish indication for sure.

    Reversal dojis also have very similar related bars; the bullish doji has a similar
    candle called a hammer; and the bearish doji has a similar candle called a
    shooting star.

    The hammer and shooting star candles are pretty much the same as their
    related reversal dojis except their closes and opens do not have to occur at the
    same price.

    Example of hammers and shooting stars:

    upload_2015-10-4_9-40-41.png

    Bullish reversal dojis and hammers can regarded as the same – the difference
    is minor; this is the same for bearish reversal dojis and shooting stars.

    Let’s take a look at some examples of bullish and bearish reversal dojis,
    hammers and shooting stars in action:
    upload_2015-10-4_9-41-39.png

    upload_2015-10-4_9-41-57.png

    upload_2015-10-4_9-42-37.png
     
  2. Kaitlin

    Kaitlin Forum Member

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    Marubozu

    Marubozu candles
    are an indication of a strong momentum-driven move.
    The fundamental feature that differentiates a Marubozu candle from an
    ordinary bullish or bearish candle is the lack of a distinct shadow. See below:

    upload_2015-10-4_9-48-9.png

    The premise behind the Marubozu is that, the after the candle has opened,
    price immediately goes in one direction without any pullback; further to this,
    the price continues in that same direction into the close of the candle, without
    any pullbacks (which would be shown by a shadow on the candle).

    In other words a Marubozu candle shows price heading in a single direction
    with very little pullback – which is indicative of a strong move with lots of
    momentum.

    Some examples of Marubozu candles:

    upload_2015-10-4_9-48-24.png

    upload_2015-10-4_9-48-36.png
     

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