If you want to become a successful stock market trader, it is very important that you learn to read and understand candlesticks or candles. These candlesticks are basically a style of technical chart used to describe price movements of a stock, derivative, or currency. Understanding candlesticks and their patterns can help you to decide the entry and exit points for your trades.
In this article, we are going to discuss types of candlesticks and their meaning that every trader should know. Let’s get started.
What are Candlesticks or Candles?
Candlesticks are the most common form to gauge the market trends, historical analysis, forecasting future. They are the most potent form of technical indicators. Just like a burning candle throws light to present and future, candlesticks with their patterns throw light on the present and goes a long way in understanding the future trends.
5 Types of Candlesticks
The doji is a reversal pattern that can be either bullish or bearish depending on the context of the preceding candles. The candle has the same (or close to) open and closing price with long shadows. It looks like a cross, but it can also have a very tiny body. A doji is a sign of indecision but also a proverbial line in the sand. Since the doji is typically a reversal candle, the direction of the preceding candles can give an early indication of which way the reversal will go.
Shooting Star Candlestick
The shooting star is a bearish reversal candlestick indicating a peak or top. It is the exact inverse version of a hammer candle. The star should form after at least three or more subsequent green candles indicating a rising price and demand. Eventually, the buyers lose patience and chase the price to new highs (of the sequence) before realizing they overpaid.
Candlestick Chart Pattern
Every candlestick tells a story of the showdown between the bulls and the bears, buyers and sellers, supply and demand, fear and greed. It is important to keep in mind that most candle patterns need a confirmation based on the context of the preceding candles and proceeding candle. Many newbies make the common mistake of spotting a single candle formation without taking the context into consideration.
Bearish Candlestick Pattern
A bearish candlestick signifies the closing price is lower than the opening price. A bearish pattern has a downward trend. Like the example above, a bearish pattern doesn’t mean every single candlestick is bearish. A lot depends on the time frame for the candlestick.
Thanks for reading our article, and you got a informative article on types of candlesticks and their meaning.