Candle Anatomy
Body
- The length of the candlestick's body indicates the strength of buying or selling pressure.
- Longer bodies suggest intense pressure, where either buyers (bulls) or sellers (bears) took control.
- Short bodies, on the other hand, reveal minimal activity.
- Long green candlesticks portray buying pressure, with the close well above the open.
- Conversely, long red (filled) candlesticks showcase selling pressure, with the close considerably below the open.
Wicks
- Upper wicks denote the session high, while lower wicks indicate the session low.
- Candlesticks with long wicks reveal trading activity extending well beyond the open and close, while those with short wicks indicate trading near the open and close.
- A candlestick with a long upper wick and short lower wick shows an initial price increase followed by sellers driving prices back down, ending near the open.
- Conversely, a candlestick with a long lower wick and short upper wick suggests an initial price decline followed by buyers pushing prices back up, closing near the open.
Spinning Top
- Small real body.
- Long upper and lower wicks.
- Neutral.
Indecision between buyers and sellers, suggesting exhaustion and possible trend reversal.
Green Marubozu
- Long green body.
- No wicks.
- Bullish.
Implies bullish control and often marks a bullish continuation or reversal in downtrends.
Red Marubozu
- Long red body.
- No wicks.
- Bearish.
Indicates bearish dominance and often signals bearish continuation or reversal in uptrends.
Doji
- Varying upper and lower wick lengths resulting in cross or plus sign patterns.
- Same open and close price or extremely short bodies, often appearing as thin lines.
When a Doji emerges, pay attention to preceding candlesticks. After a series of green-bodied candles, a Doji signals buyers' exhaustion. Conversely, if a Doji follows a sequence of long red bodies, sellers might be weakening.
Hammer
- Small body.
- Lower wick 2-3 times length of body.
- No or short upper wick.
- Occurs in downtrend.
- Bullish.
As prices decline, the hammer suggests an upcoming price increase, with buyers countering selling pressure and resulting in a close near the open.
Hanging Man
- Small body.
- Lower wick 2-3 times length of body.
- No or short upper wick.
- Occurs in uptrend.
- Bearish.
It shows downward price pressure as sellers begin to outnumber buyers. Although buyers counteract the decline, their efforts only lead to a marginal recovery near the opening price.
Inverted Hammer
- Small body.
- Upper wick 2-3 times length of body.
- No or short lower wick.
- Occurs in downtrend.
- Bullish.
Signals increasing buyer influence. Though sellers attempt to push prices back down, buyers manage to close the near the open.
Shooting Star
- Small body.
- Upper wick 2-3 times length of body.
- No or short lower wick.
- Occurs in uptrend.
- Bearish.
This indicates that buyers initially pushed the price up, but their efforts were outweighed by sellers who took control.
Engulfing Candle
- A smaller candle is followed by a larger candle that is opposite the trend, effectively “engulfing” the previous.
Bullish engulfing candles suggest that buyers are stepping in, signaling a potential upward movement following a downtrend or consolidation phase. Conversely, a bearish engulfing candle indicates sellers have overwhelmed buyers with a potential strong downward movement next.
Tweezer Candles
- Occurs during extended uptrends or downtrends, signaling an impending reversal.
- The candlestick wicks should create a resemblance to tweezers, with Tweezer Tops having near-equal highs and Tweezer Bottoms having near-equal lows.
This pattern involves two candlesticks—the first candle aligning with the trend and the second candle opposing it.
Morning Star
- Occurs at the end of a trend.
- Bullish.
Begins with a bearish candle, followed by a small-bodied candle signifying uncertainty, and concludes with a bullish candle that closes above the first candle's midpoint
Evening Star
- Occurs at the end of a trend.
- Bearish.
Begins with a bullish candle, followed by a small-bodied candle, and concludes with a bearish candle that closes below the first candle's midpoint.
Three White Soldiers
- Occurs in extended downtrends or short consolidation periods.
- Minimal upper or lower wicks in the second and third candles strengthens the pattern's significance.
- Bullish.
Three consecutive green candles are formed, each opening higher than the previous close and closing near their highs.
Three Black Crows
- Occurs at the end of a strong uptrend.
- Minimal upper or lower wicks in the second and third candles strengthens the pattern's significance.
- Bearish.
Three consecutive red candles are formed, each opening higher than the previous close and closing near their lows.
Three Inside Up/Down
- Signifies a potential reversal
It involves three candles: a first candle following the trend, a second candle that covers or exceeds the midpoint of the first candle, and a third candle that closes beyond the high or low of the first candle.
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