Let's Look at Some Candles

Let's Look at Some Candles

Every Candlestick has a name. So, let's discuss some basic but very important Single Candlesticks first.


For now, don't be concerned about knowing how to trade them. I just want to show you what some of the single Candles look like. We will be going into great detail on each one later in the course.


We will get into the more advanced ones later but many of the advanced ones will incorporate one simple Candlestick within their pattern.


Trading with Candlesticks does not have to be complicated. Most Candlestick patterns involve three or more Candlesticks. Three has an important meaning in Japanese. We have them in English too; "Third time’s a charm”, “Three times lucky, “Three strikes, and your out. They are "building blocks" to many Candlestick patterns, so if you learn to recognize these you can trade Candlesticks with much more confidence!


The Doji

The "Doji" is one of the most powerful Candlesticks you will see. The open and close were at the same level! Each of these Doji will be covered in detail later in the course.


Below, you can see at the top there is a Doji Star. They are called a "Star" because they are at the top or the bottom of the trend and look to have "broken away" from the other Candles. In Western Analysis we would say that it gapped up or down. If one appears in the middle of the trend it doesn’t have nearly as much importance, so I labeled it “Nothing Special”; however in a trending market that is making new highs or lows and a Doji Star appears, it could indicate a pause or even a reversal in the trend. Just be aware of this when you see it.

On the above Chart. It says “Nothing Special” on two of the Doji. Well, that depends on where they are in a specific pattern, and we'll look at that when we look at each one of the Doji in particular on some of the candle stick patterns later in the course. But in the middle of a trend, they don't mean as much.


Spinning Top


The Spinning Top below can be considered a "close cousin" to the Doji. Rather than the open and close having to be at the same price, a Spinning Top has a small or narrow body. The color of the body isn't really important. This too signifies a "pause", "balance", or lack of opinion, just not to the extreme degree of a Doji. Again, we look for these in the context of an established trend. Long upper AND lower "shadows" on the same candle should even be looked at more closely.


Seek to simplify, not to complicate.


Shooting Star


The Candlestick below is called a "Shooting Star" which is VERY Bearish at the top of a trend and often signals a market top. The Japanese say that there is trouble overhead. It's best if it has no lower shadow.


What actually happened is that the Bulls took control and ran the price up but there was no interest in buying at the high and the price dropped back down. You must wait for confirmation the next day but it’s a strong Bearish Candle.


Hanging Man


Next, we have the "Hanging Man" at the top of the trend. It should have no upper shadow. The color of the body does not matter.


Even though the Bears ran the price down during the day and the price came back up near the open, there is no upper shadow, so the Bulls lost the ability to take the price any higher. Strong Bearish signal especially if the priced gapped up from the previous day.


We should keep an eye out for this Candlestick in a long UPTREND because quite often it’s a reversal signal A “Hanging Man” looks exactly like the Hammer discussed below but it’s at the top of a trend and it's very Bearish. The Japanese say that the Bulls hung themselves.


Hammer


A Hammer looks exactly like the Hanging Man except it’s at the BOTTOM of a downtrend. It’s strongest when it has no upper shadow and a very long lower shadow. The color of the body does not matter. The Japanese say that the market is “hammering out a Bottom.


During the day the Bears were able to run the price down but could not keep it down. Wait for confirmation.


Engulfing Patterns


There are two types of Engulfing Patterns; one is Bullish and one is Bearish.


Below is a Bullish Engulfing Pattern


The exact opposite pattern appears for a Bearish Engulfing pattern shown below. The same rules apply and the more Candles that are Engulfed the stronger the pattern is. Another one is shown below.


Below is a Bearish Engulfing Pattern


The exact opposite pattern appears for a Bearish Engulfing pattern shown below. The same rules apply and the more Candles that are Engulfed the stronger the pattern is.