Candlestick Patterns

Candlestick patterns are the basic indicators that helps a trader find ways of interpreting candlestick charts. This is very useful for creating simple systems that will tell you when a trend is forming so that you can open a trade.

Candlesticks have a form which shows the open, high, low and closing price of a currency, stock or commodity over a period. You can usually select the period that you want to show. 5 minutes is most common for day traders but you might choose 15 minutes in some cases. For longer term trading you can select longer periods.

The body of the candle marks the difference between the open and close points. If it is white (or green/blue on a colored chart) the open is the lower boundary of the rectangular body and the price rose during the period you are considering. If is black (or red on a colored chart then the opening price is the top boundary and the price fell.

The wick is the name given to the vertical lines that typically stick up from the top and down from the bottom of the candle body. The top of the upper section of wick is the highest point that the price ever reached during the period. The bottom of the lower wick is the low.

The benefit of this type of analysis is that the trader can immediately see whether prices rose or fell over the period. A white or green candle shows a rising price or bearish tendency and a black or red candle shows a falling price or bullish tendency.

You can also see at a glance how the highs and lows relate to the opening and closing prices. You might have a candle that is completely solid, with no wick. This is called a Marubozu pattern. In this case the prices never went lower or higher than their opening and closing positions. If the candle is black or red, the opening price was the high and the closing price was the low. If it is white or green, the opening price was the low and the closing price was the high.

You might also have a candle that is all wick with just a small horizontal bar forming a cross. This pattern is called a Doji. In this case the opening and closing points were the same, and the wick shows how far the price went up and down before coming back to its starting point at the close.

A long body indicates a fairly steady trend either downward or upward. A long wick either top or bottom indicates a reversal.

For accurate trend indication a candlestick needs to be read in conjunction with the others that preceded it. Then you can create more complex candlestick patterns showing the likely trends to come.