How To Read Chart Candles

bearish engulfing

A long wick on either side, meanwhile, means that price spiked up or down – but the move reversed before the close. The wick is the line that comes out of the top and bottom of a candlestick’s body. Sometimes, you might see it referred to as the candle’s shadow. Most line charts, meanwhile, will only tell you a market’s closing price for each period.


The higher timeframes offer a better view of the overall structure of the market and show the direction of the main trend. So you can analyze the candlestick patterns bearing in mind the direction of the market. This will help you make better analysis and avoid going against the predominant trend. For example, some of the candlestick patterns can indicate potential market reversal levels while others may indicate trend continuation.

The opposite to this pattern is the evening star, which is the bearish version signalling an uptrend into a downtrend. The most bullish candlestick patterns are the hammer, the inverted hammer, the cloud break, three white soldiers. The Japanese candlestick charts are a popular and user-friendly tools to monitor the price movements and predict the changes in the trend. I also gave examples of candlestick analysis in the real price charts, described how to define candlestick patterns and trade them in real trading.

potential trend reversal

Volume was lower than the previous day suggesting traders paused for breath. As we are concerned with spotting changes in price moves, we will focus on the Reversal Patterns. This section is the Bullish Reversal Pattern, meaning when a price is moving down, and you see this sign, the price may change direction and start moving up in the short term. These are the most common patterns; not an exhaustive list, but they will give you an idea of what is common in all patterns. Three of our review-winning stock market charting software have functionality that can better identify and analyze candlesticks than humans can. At first, candlesticks look very difficult to understand, and there are at least 60 different main patterns.

Bullish trend Harami

Before you enter a buy trade, make sure the inverted hammer candle is bullish. The bullish sentiment can be confirmed by other candle patterns, like engulfing, hammer, three white soldiers, and so on. For example, such patterns as engulfing, dark cloud cover, cloud break, are strong reversal patterns, signaling that the ongoing trend is to reverse soon.

A is one of the easiest Bearish reversal patterns to spot and usually occurs during an uptrend. Our pro investing classes are the perfect way to learn stock investing. You will learn everything you need to know about financial analysis, charts, stock screening, and portfolio building so you can start building wealth today. Using Japanese Candlestick Analysis to evaluate market direction during a crashThe Doji is a Candlestick pattern that suggests indecision in the marketplace. The Open and Close prices are very close, yet there is a longer distinguishable wick. During a downtrend, we experience a very negative “Long Day,” followed by a short positive day.

Additionally, some companies, like TradingView, offer free online trading charts. Trading charts feature the ability to view data over different time intervals; like monthly, weekly, daily, and intraday. Intraday charts commonly used include hourly, 15-minute, 5-minute, and 2-minute charts. Unbeknownst to her, the stock was not really a “stock” because what she was referring to is the chart of the Philippine Stock Exchange Index . She told me later on that she bought shares from First Metro Philippine Equity Exchange Traded Fund which is akin to the chart of the PSEi. 2009 is committed to honest, unbiased investing education to help you become an independent investor.

Within each candle you see in hindsight the market was gyrating back and forth, but the bar/candlestick only records the open, high, low, and close for the time period. Much more took place within the bar than the high, low, open, and close. If a trader only looks at historical data, breakouts may appear clean and easy to trade, yet in real-time, the market may move back and forth over the breakout point several times . When the bar closes, it looks like a clean breakout occurred, but in real-time maybe it wasn’t. They visually show the high, low, open, and close prices for a given time frame.

read trading charts

When using historical charts, assume that the stop loss would need to be outside the candle that formed the trigger for the trader. An important consideration is the location of where these engulfing patterns are situated in the context of an overall price trend. In the illustration above, it becomes evident that when these patterns are situated at the extremes of a price trend, they tend to have a bearing on where price is likely to head next. Long black candlesticks indicate that the Bears controlled the ball for most of the game. If we are discussing the physical object then a candlestick is a device used to hold a candle in place. Candlesticks have a cup or a spike (“pricket”) or both to keep the candle in place.

Interpreting Patterns

We will talk about these Candlestick Charts and offer steps to help you read them. Another candlestick pattern is called “Harami” whereby the pattern will contain two candles and the second candle is smaller than the first one. The smaller candle stays alongside the midriff of the larger candle . Note that only the body needs to be inside the first candle, the wicks are irrelevant.


It indicates that the selling pressure from the first day may have subsided and that a bull market may be approaching. A long white real body visually displays the bulls are in charge. Can be used in all markets such as the stock market, forex market, or futures or commodity markets and can be a powerful trading tool for option trading. Candles are either bullish or bearish depending on the direction of the price during the period they are drawn for. Even though the pattern shows us that the price is falling for three straight days, a new low is not seen, and the bull traders prepare for the next move up. Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.

A doji is a trading session where a security’s open and close prices are virtually equal. In the first trade, the AUDUSD was already moving to the downside. Once the Engulfing Bearish Candlestick broke below the support level, it opened up the possibility of a trend continuation. The next day, AUDUSD price penetrated below the low of the Engulfing Bearish Candlestick and confirmed the trade, which triggers the sell order.

Last Price or Current Price on a Candlestick Chart

The end of the top wick is the high price for the session and the end of the bottom wick is the low price for the session. Candlestick charts don’t need to be used alone or chosen over other strategies. They can be folded into any current trading strategy and still be effective. To see whether a market rose or fell in the time it covers, you just look at the colour of the candle.

  • Each candlestick pattern is reliable in particular situation.
  • On their own, the patterns don’t assure a change of price direction.
  • For instance, a tall upper shadow shows the market rejected higher prices while a long lower shadow typifies a market that has tested and rejected lower prices.
  • Do never try to trade a candlestick pattern all by itself, but use it as inspiration, and try to come up with your own trading strategy.
  • A spinning top shows indecision and might be a neutral candlestick indicating a pause in the trend or a continuation.

The conventional short-sell triggers form when the low of the engulfing candle is breached and stops can be placed above the high of the harami candlestick. Candlestick chart is the most popular form of price charts used by traders. In a candlestick chart, the price graph is represented in the form of a series of candles, hence it is called a candlestick chart. Japanese Candlestick charts are the preferred choice of many traders since the price moves are easy to see and trade signals can be spotted quite quickly due to the colors.

Bearish Continuation Candlestick Patterns

To learn more about Ezekiel’s method of trading backed by mathematical probability, you can check out his one core program. Thanks to all authors for creating a page that has been read 68,782 times. WikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 97% of readers who voted found the article helpful, earning it our reader-approved status. Gordon Scott has been an active investor and technical analyst or 20+ years.

As a result, many professional have moved to using Candlestick charts over bar charts because they recognize the simple and effective visual appeal of candlesticks. The bearish harami is the inverted version of the bullish harami. The preceding engulfing candle should completely eclipse the range of the harami candle, like David versus Goliath. These form at the top of uptrends as the preceding green candle makes a new high with a large body, before the small harami candlestick forms as buying pressure gradually dissipates. Due to the gradual nature of the buying slow down, the longs assume the pullback is merely a pause before the up trend resumes. A hammer candlestick forms at the end of a downtrend and indicates a near-term price bottom.

Candlestick chartsdisplay the high, low, open, and closing prices of a security for a specific period. Candlestick patterns are identifiable shapes formed by a single candlestick or group of candlesticks. Each candlestick represents a trading session, and it is often colored to indicate how the price closed during that session. Although it is theoretically seen as a bullish reversal pattern, a lot of traders actually consider this one a bearish continuation pattern. While traders can use any color combination, green or white is generally used to represent a session where the price closed higher than its opening price. Red or black color, on the other hand, is used to represent a session that closed lower.

As with all types of trading, they’re not guaranteed to make you profits, as the markets can be volatile and trading with leverage can result in equal amounts of losses. However, candlestick charts can help you to determine trends, whether these are bullish or bearish, which may lead to profits if your trade is successful. A close above an open indicates bullish market sentiment, and this is denoted by a green candle. A long wick on either side of the candlestick indicates strong rejection of a price level by the market. Formed of three consecutive black candlesticks with long bodies, these indicate the lack of buying conviction in the market, which allowed bears to successfully push prices lower. Even if you’re not a day trader, candlestick charts can give you a lot of useful information about potential investments.

Small bodies hint that the prior trend (i.e. the rally) could be losing its breath. No candle pattern predicts the resulting market direction with complete accuracy. Whenever making trading decisions based on technical analysis, it’s usually a good idea to look for confirming indications from multiple sources. The inverted hammer has a long upper candlewick and a small body in the lower part of the candle. Same as the hammer, an inverted hammer appears during bearish trends.

Shooting star

Dojis come right at the peak or trough right before a reversal, but candlestick charts shouldn’t be looked at individually. They should always be looked at in groups to see the context and patterns. The next candlestick has a long white body which closes in the top half of the body of the first candlestick. Engulfing patterns are the simplest reversal signals, where the body of the second candlestick ‘engulfs’ the first.

They are not strategies on their own, but can be used as potential entry signals or triggers when combined with a well-research strategy. Occasionally, you’ll see bars that are nearly all upper and/or lower shadow, with very little real body. Japanese Candlesticks show the high, low, open, and close price of an asset, as well as highlight whether the pair finished higher or lower, over a specific period.

The resulting candlestick has a long upper shadow and small black or white body. After a large advance , the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should be relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can take the form of a gap down or long black candlestick on heavy volume. As with the dragonfly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure.