What is a Candlestick?
A candlestick represents price movement during a specific time period (e.g., 1 minute, 1 hour, 1 day). It shows four key price points:
Open: The price at which the period starts.
Close: The price at which the period ends.
High: The highest price reached during the period.
Low: The lowest price reached during the period.
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Structure of a Candlestick
1. Body: The filled or hollow part of the candlestick shows the difference between the open and close prices.
Green/White Body: Price closed higher than it opened (bullish).
Red/Black Body: Price closed lower than it opened (bearish).
2. Wicks (Shadows): The thin lines above and below the body represent the high and low prices.
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Common Candlestick Patterns
Bullish Patterns (Indicate potential upward movement):
1. Hammer: Small body with a long lower wick.
2. Bullish Engulfing: A small red candle followed by a larger green candle that engulfs the previous one.
3. Morning Star: A three-candle pattern with a bearish candle, a small indecisive candle, and a bullish candle.
Bearish Patterns (Indicate potential downward movement):
1. Shooting Star: Small body with a long upper wick.
2. Bearish Engulfing: A small green candle followed by a larger red candle that engulfs the previous one.
3. Evening Star: A three-candle pattern with a bullish candle, a small indecisive candle, and a bearish candle.
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How to Analyze Candlesticks
1. Trend Direction: Look at the series of candlesticks to determine if the market is trending up, down, or sideways.
2. Volume Confirmation: Higher trading volume during a candlestick pattern strengthens its significance.
3. Support & Resistance: Identify key levels where price reverses or consolidates.
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1. Bullish Candlestick Patterns (Upward Movement)
These patterns indicate that the price is likely to rise, making them useful for identifying buying opportunities.
a. Hammer
Description: A small body near the top with a long lower wick.
Signal: Sellers pushed the price down during the session, but buyers regained control by the close.
Usage: If this pattern appears near a support level, it signals a potential bullish reversal.
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b. Bullish Engulfing
Description: A small red candlestick followed by a larger green candlestick that completely engulfs the previous one.
Signal: Buyers are gaining strength, overpowering sellers.
Usage: This pattern often forms at support levels, indicating a possible price increase.
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c. Morning Star
Description: A three-candlestick pattern with a bearish (red) candle, a small indecisive candle, and a bullish (green) candle.
Signal: After a price decline, buyers are regaining momentum.
Usage: It signals a trend reversal to the upside, often forming at the end of a downtrend.