[In-depth Interpretation of Candlestick Applications] - Issue One
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The candlestick chart, also known as the candle chart, originated in Japan in the 18th century, initially used for rice price analysis, and later spread to Western markets, now becoming a core tool for analyzing price trends of financial assets such as stocks, forex, and cryptocurrencies.
1. Composition of Candlesticks
Components of the candlestick: opening price, highest price, lowest price, and closing price.
1️⃣ Body: The body of the candlestick is the rectangular part formed by the distance between the opening and closing prices. The length of the body shows the magnitude of price fluctuations.
2️⃣ Bullish Candle (Upward Candlestick): When the closing price is higher than the opening price, the candlestick is bullish (usually red or green), indicating a price increase.
3️⃣ Bearish Candle (Downward Candlestick): When the closing price is lower than the opening price, the candlestick is bearish (usually black or blue), indicating a price decrease.
4️⃣ Shadow: Shadows are the segments extending up or down from the body, divided into upper shadow and lower shadow.
1) Upper Shadow: The part extending from the top of the body to the highest price, indicating that the price once rose to a certain high point.
2) Lower Shadow: The part extending from the bottom of the body to the lowest price, indicating that the price once fell to a certain low point.
2. 11 Classic Candlestick Combinations
Candlestick combinations better reflect changes in market psychology.
1️⃣ Morning Star and Evening Star
1) Morning Star: Composed of a bearish candle, a small Doji or small bullish candle, and a large bullish candle, indicating a market transition from bearish to bullish. The bearish candle indicates a decline, the small candle shows hesitation in the market, and the large bullish candle indicates a recovery of buying power. The Morning Star generally appears at the end of a downtrend, suggesting a potential upward reversal.
2) Evening Star: The opposite of the Morning Star, usually appearing at the end of an uptrend, composed of a bullish candle, a small candlestick (Doji), and a large bearish candle, indicating a market transition from bullish to bearish.
2️⃣ Engulfing Pattern
1) Bullish Engulfing: Composed of a small bearish candle and a large bullish candle, with the large bullish candle completely engulfing the previous bearish candle, indicating a rapid strengthening of bullish power and serving as a sign of market reversal upwards.
2) Bearish Engulfing: Composed of a small bullish candle and a large bearish candle, with the large bearish candle completely engulfing the bullish candle, reflecting a significant increase in bearish power, serving as a warning signal for market decline.
3️⃣ Doji:
When the opening price and closing price are close, a 'Doji' is formed. The Doji reflects the balance of power between buyers and sellers, symbolizing 'uncertainty' in the market, often serving as a signal for trend reversal.
1) Top Doji: Indicates that the buying power is exhausted and may switch from rising to falling at any time.
2) Bottom Doji: Indicates weakening selling power, and the market may enter a rebound.
4️⃣ Hammer and Inverted Hammer:
1) Hammer: Small body with a long lower shadow, appearing in a downtrend, indicating strong support from buyers at low levels, with potential rebound signals.
2) Inverted Hammer: Small body with a long upper shadow, usually appears at the top of an uptrend, suggesting an increase in selling pressure, and a potential pullback.