Technical Indicator: Candlesticks

Japanese Candlesticks Pattern

Analyzing market through candlesticks is first discovered by Steve Nison, learned it from a fellow Japanese broker. After hard-core research on candlesticks, steve began to write about it and soon this technique became popular in the ’90s.

How’s it works?

The below picture will brief about it.

candlesticks
Candlesticks

Be it any indicator, the time frame is a must. Unlike others, it can be used for any time frame, whether it be one day, one hour, 30 minutes, etc. They are used to show price actions during a given time frame.

It is formed by price fluctuation in a given period of time as shown above- open, high, low and close.

key Insights

  • If the close is above the open (Bull), then a hollow stock candle (usually displayed as white or green) is drawn.
  • If the close is below the open (Bearish), then a filled stock candle (usually displayed as black or red) is drawn.
  • The hollow or filled section of the stock candle is called the “real body” or body.
  • The thin lines poking above and below the body display the high/low range are shadows.
  • High” is the top of the upper shadow.
  • “low” is the bottom of the lower shadow.

But the size of the Body is not the same all time, how to identify?

Long VS Short Body

Long Vs Short Body
Long Vs Short Body

The long body indicates strong buying or selling pressure and short body related with little buying or selling activity.

Mysterious Shadows

Mysterious Shadows
Mysterious Shadows

The upper and lower shadow signifies high and low session respectively. Long shadows show that trading action occurred well past the open and close. Short shadows indicate that trading action was confined near the open and close.

Spinning Tops

Spinning Tops
Spinning Tops
  • The small real body made with little movement from open to close indicates indecision between buyers and sellers.
  • If a spinning top formed during an uptrend, it means a lack of buyers, and a possible reversal in direction could occur.
  • If a spinning top formed during a downtrend, it shows limited buyers, and a possible reversal in direction could occur.

Hammer and Hanging Man

Hammer and Hanging Man
Hammer and Hanging Man

Though it’s look similar but different in meaning depending on past price action.

Hammer is a bullish reversal pattern that forms during a downtrend when the price is falling hammer signals that the bottom is near and the price will start rising again.

Hanging Man is a bearish reversal pattern that can also mark a top or strong resistance level. When the price is rising hammer indicates that the sellers are beginning to outnumber buyers.

P.S.- Do share your comments after applying all stated parameters!

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