Invented by the Japanese in the 17th century, candlestick trading and the use of candlestick patterns is one of the earliest forms of Technical Analysis. The Japanese originally developed this method as a way of trading rice. It has undergone a few changes since its inception, but many of the original principles remain the same. This method makes use of the opening, closing, high and low prices over a period of time and illustrates them on a candlestick chart.

What Is a Candlestick Chart?

True to its name, a candlestick chart resembles a basic candle. There is a body with long thin lines protruding from either end. These lines represent the high (top line) and low (bottom line) ranges and are sometimes referred to as shadows. The opening and closing prices are also charted on the shadows, but the position is determined by price. If the closing price is higher than the opening price, then the closing price is positioned on the top shadow, with the opening price on the bottom. If the closing price is lower than the opening price, their positions are reversed. These charts also illustrate the opening and closing relationship by leaving the body hollow if the closing price exceeds the opening price, while a filled body represents the opposite.

Other Features of Candlestick Bodies and Shadows:

Candlesticks display buying and selling pressure by the length of the body itself. If the closing price has exceeded the opening price by a large margin, then the candlestick for that period will have a long, hollow body, demonstrating strong buying pressure. A short body represents little change between the opening and closing prices.

Just as bodies have varying lengths, so do the shadows. Short shadows mean that most of the trading occurred near the open and close, while long shadows mean that prices extended beyond the open and close. If the high shadow is long, but the lower is short, it means prices were driven up by high buying pressure, but fell before closing.

Some examples of Bullish Reversal Candlestick Patterns include:

• Hammer Candlestick
• Inverted Hammer
• Bullish Counterattack
• Piercing Pattern
• Bullish Engulfing
• Morning Star Pattern

Some examples of Bearish Reversal Candlestick Patterns include:

• Shooting Star
• Hanging Man
• Bearish Counterattack
• Dark Cloud Cover
• Bearish Engulfing
• Evening Star Pattern

As you can see, there is a lot of data contained within these charts. Our program will teach you how to interpret these useful charts and how to use the information to your advantage.

Who Uses Candlestick Patterns?

Anyone can learn how to use these chart formations to improve their trading. Candlestick patterns are unique in the sense that a trader can get a quick idea of price direction and strength just by glancing at one of these charts. Perhaps this is one of the reasons that these patterns have become so popular with short term investors.

Candlestick charting can prove to be a useful tool in the trading world. With our help, you will be able to use candlestick patterns to preserve your gains, identify potential entries and exits, and gain a better overall feel for an asset’s direction. Take the next step toward becoming a successful investor today.