Candlestick charts are made up of individual candlesticks and each candle sticks have a story to tell about the price action of a stock or any financial instrument. Traders and investors have to look for patterns in candlesticks that helps to understand whether the trend of a financial instrument is about to reverse or will continue. There are several trend continuation candle stick and trend reversal candlestick, investors has to analyze the candlesticks accordingly to make intelligent decisions in the market. For example, if there a series of bullish candlesticks like marubozu in a chart it indicates that the bulls are in control and that the price of a stock or financial instrument is likely to continue moving up. Conversely, the same can happen if there are a series of bearish candles, there is high probability for a stock price to move down. When it comes to candlestick analysis there are trend continuation candles, trend reversal candles etc, lets closely understand the different types of single candlesticks to make informed decisions in market.
Types of single candle stick patterns
Marubozu candlesticks are formed in a chart when the opening price of an asset class is the same as the low price or the high price is the same as the closing price.
- When it is Bullish Marubozu in the chart, the Opening price = Low and High = Closing price
- A bullish marubozu candlesticks indicate that the market has been dominated by buyers and bearish marubozu indicates that the market has been dominated by sellers throughout the entire trading period.
- It Indicates financial instrument or stock is now bullish
- When it is bullish marubozu , Buy at Close. Keep stop Loss at Low
- When it is Bearish Marubozu in the chart Opening price = High and Low = Closing price
- Bearish marubozu indicates that sellers were in control and dominating the market throughout the entire trading period and that the price of the financial instrument has closed near the low.
- Bearish marubozu indicates stock is now in a bearish trend
- When it bearish marubozu Sell at Close and keep Stop Loss at High
- spinning top candlestick has a small body and represents a period in which the opening and closing prices are close together. In a Spinning Top-
- The candle body will be small
- The upper shadow and the lower shadow will be similar
- If there is a Spinning top candle in a chart there is high probability that there is indecision. neither the bulls nor the bears have dominance in such market condition.
- Color of the candle body really does not matter as it is small
- Spinning tops in a Downtrend – traders can book profit if you are in short position or you could enter into a new long/short position.
- Spinning tops in an Uptrend – traders can book profit if you are in long position or you could enter into a new long/short position.
- Doji candlestick has a very short body or no body which represents the period in which the opening price and closing price are very close together.
- A Doji indicates indecision in the market. Doji candle can be considered as an indicator for trend reversal as well.
- Doji candles have no real body or miniscule body
The upper and lower shadow might be of varying lengths. Depending on that there are various types of Doji’s
- Standard / classic Doji
- Long legged Doji
- Dragonfly Doji
- Gravestone Doji
- Four Price Doji
- The paper umbrella candlestick consists of two single candlestick pattern which helps traders to get insight about directional trades. Two candlesticks pattern in paper umbrella are hammer and hanging man. It has,
• Small upper body
• Long lower shadow. Normally the length of the lower shadow in paper umbrella will be twice the real body
- Color of the body of both hammer and hanging man really does not matter
Hammer – This candlestick has a long lower wick and a short body, and it typically forms at the bottom of a downtrend.
- Buy at close of candle stick and keep Stop Loss at Low.
Hanging Man – Hanging man candlestick has a long lower wick and a short body, and it typically forms at the top of an uptrend in a chart.
- The shooting start is a single candlestick pattern which has a long upper wick and a short body, and it typically forms at the top of an uptrend.
- shooting star has Small lower body
- shooting star has Long upper shadow. The bigger the upper wick is, the more bearish the stock or financial instrument is.
- Shooting star indicates that the bears are starting to take over.
- The color of the candle body does not matter
- Sell at Closing price of shooting star candle stick and keep Stop Loss at High of the candle