Each candlestick is made from several parts:
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Real Body: The real body is the thick part of the candlestick and represents the difference between the opening and closing price. A real body that is white (or green) indicates a positive candle, while a black (or red) real body shows a negative candle.
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Upper and Lower Shadows or Wicks: The upper and lower shadows represent the high and low prices during the period. They show how much the price has deviated from the opening and closing prices.
There are many different candlestick patterns, each with a unique meaning and interpretation.
Some of the most commonly used candlestick patterns
Hammer: The hammer is a bullish reversal pattern that occurs after a downtrend. It has a small real body (white or green) near the top of the candle and a long lower shadow. The long lower shadow indicates that the price was pushed down significantly but ultimately closed higher. This pattern suggests that the selling pressure has diminished and that buyers are taking control of the market.
Hanging Man: The hanging man is a bearish reversal pattern that occurs after an uptrend. It has a small real body (black or red) near the bottom of the candle and a long upper shadow. The long upper shadow indicates that the price was pushed up significantly, but ultimately closed lower. This pattern suggests that buying pressure has diminished and that sellers are taking control of the market.
Bullish Engulfing: The bullish engulfing pattern is a two-candle pattern where the real body of the second candle completely engulfs the real body of the first candle. The first candle is typically a small black or red candle and the second candle is a large white or green candle. This pattern signals a bullish reversal and suggests that buying pressure has increased and that the market is shifting from bearish to bullish.
Bearish Engulfing: The bearish engulfing pattern is the opposite of the bullish engulfing pattern. It is a two-candle pattern where the real body of the second candle completely engulfs the real body of the first candle. The first candle is typically a small white or green candle and the second candle is a large black or red candle. This pattern signals a bearish reversal and suggests that selling pressure has increased and that the market is shifting from bullish to bearish.
Morning Star: The morning star is a three-candle pattern that signals a bullish reversal. It occurs after a downtrend and consists of a small real body candle (black or red), followed by a large real body candle in the opposite direction (white or green), and then a third small real body candle in the original direction (white or green). The pattern suggests that the market has shifted from bearish to bullish and that buying pressure is increasing.
Evening Star: The evening star is the opposite of the morning star and signals a bearish reversal. It occurs after an uptrend and consists of a small real body candle (white or green), followed by a large real body candle in the opposite direction (black or red), and then a third small real body candle in the original direction (black or red). The pattern suggests that the market has shifted from bullish to bearish and that selling pressure is increasing.
Bullish Harami: The bullish harami is a two-candle pattern where the real body of the second candle is completely contained within the real body of the first candle. The first candle is typically a large black or red candle and the second candle is a small white or green candle. This pattern signals a potential bullish reversal and suggests that buying pressure is increasing and that the market may be shifting from bearish to bullish.
Bearish Harami: The bearish harami is the opposite of the bullish harami and signals a potential bearish reversal. It is a two-candle pattern where the real body of the second candle is completely contained within the real body of the first candle. The first candle is typically a large white or green candle and the second candle is a small black or red candle. This pattern suggests that selling pressure is increasing and that the market may be shifting from bullish to bearish.
These are just a few of the many different candlestick patterns that traders and investors use to analyze market sentiment and make informed trading decisions.
It is important to remember that candlestick patterns are just one of the many tools used in technical analysis and should not be relied upon exclusively.
They should be used in conjunction with other forms of analysis, such as trend analysis and support and resistance levels, to make informed trading decisions.