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In 1987, Steve Nison, a person from West, became acquainted with a Japanese broker. It was through her, that Steve Nison had his first exposure on candlestick. Since then, he was hooked with the terms used in candlestick and had spent the next few years exploring and doing research about candlestick charts.
Spinning Tops
This pattern is formed by candlesticks with long upper and lower shadow and small real bodies.
This can occur in both red and green colour candlesticks.
It means indecision between buyers and sellers in that period of time.
If such candlestick pattern is formed during down/up trend, it usually means that there arent many sellers/buyers left
and there could be a possible reversal trend direction.
If such candlestick pattern is formed during up trend, it usually means that there arent many buyers left and there could
be a possible reversal trend direction.
Marubozu
This means that there is no existence of shadow from the candlestick.
The high and low is equivalent to open and close.
It can be either a bull or bear candlestick.
Shadows
It is commonly seen in candlesticks that have less activity.
The upper shadows represent session highs and the lower shadows represent session lows.
Candlesticks with long upper shadows represent high buying/selling rejection for that session.
Candlesticks with short shadows represent that low buying/selling rejection for that session.
Candlestick Patterns
There are quite a few candlestick patterns available in the market. We shall now elaborate in detail the meaning of each pattern.
Reversal Patterns
Reversal pattern is closely monitored in order to change a direction in market psychology and trend. Below mentioned are the reversal patterns:
1. Hammer
2. Hanging-man lines
3. Engulfing
4. Dark-cloud cover
5. Piercing pattern
6. Star
7. Inverted hammer
Hammer
Such signal appear in a downtrend means trying to gauge the depth of the bottom before making a U-turn.
Below mention are criteria that formed the hammer pattern:
Long lower shadow should be twice the height of real body.
Small real bodies near bottom of the daily trading range.
Can be either red or green body.
Hanging-Man Lines
The word Hanging-man Lines is derived from an uptrend, where the signal appears as though a man was hanging with dangling legs.
Below mention are criteria that formed the hanging man pattern:
Long lower shadow should be twice the height of real body.
Small real bodies near top of the daily trading range.
Can be either red or green body.
Engulfing
This is a major reversal signal with two opposite colour real bodies forming the pattern.
Below mention are some of the criteria that formed the engulfing pattern:
Market has to be up/down trend.
Two candlesticks forming the engulfing pattern.
The second candlestick must engulf the previous real body (it does not need to engulf the shadows).
Second candlestick body has to be opposite colour from the first one.
Dark-Cloud Cover
Dark-cloud candlestick pattern are formed when two candlesticks is at the top of an uptrend.
First candlestick is a green (bullish) real body.
Second candlestick open higher than previous closed
Second candlestick eventually ended the session low with penetration of 50% into first candlestick real body, which
means a red (bearish) candlestick.
Piercing Pattern
This is a reverse of dark-cloud cover pattern, which is a bottom reversal formation. This is formed when two candlesticks is at the bottom of an uptrend which is similar to a bullish engulfing pattern.
First candlestick is a red (bearish) candlestick.
Second candlestick opens sharply lower, under the low of first candlestick.
Second candlestick eventually closes the session above the mid-point of first candlestick real body. The greater the
penetration of the previous candlestick, the more significant is the reversing pattern.
Although piercing pattern is a bottom reversal formation. However, do take note that if the second candlestick penetration to the first candlestick real body is insignificant, it will be viewed as a bearish signal. There are total three types of this bearish signal.
1) On-neck
2) In-neck
3) Thrusting pattern
Star
This is a small real body of a candlestick that gaps away from the previous significant candlestick real body. It is also valid as long as ths real body doesnt overlap the previous candlestick real body.
The following are the four different types of stars in the candlestick pattern formation:
Morning star
Evening star
Doji star
Shooting star
Morning Star
This is a bottom reversal pattern. The formation of this star is as follows:
First candlestick has to be red (bearish) long candlestick body.
Followed by small green real body that gaps lower than the first candlestick.
The formation is completed with third bullish candlesticks real body within the first periods red candlestick.
Evening Star
This candlestick formation is the reverse of morning star i.e. it is an uptrend top reversal.
The formation of evening star is as follow:
First candlestick has to be green (bullish) long candlestick body.
Followed by small red real body that gaps higher than the first candlestick.
The formation is completed with a third bearish candlestick real body moves sharply into the first green real body.
Doji Star
This candlestick gives potent warning of the current trend which could be heading for reversing.
The formation of doji star is as follow:
Opening and close prices the same.
If it is found in morning star candlestick pattern, it is called a morning doji star.
If it is found in the evening star candlestick pattern, it is then termed as evening doji star.
There are a few doji line patterns. They are namely doji, long-legged doji and gravestone doji.
Long-legged doji
Long upper and lower shadows.
Gravestone
Price opens on the low of the session and then rallies upwards (preferable to a new high).
It then closed back to its opening price.
In an uptrend, such candlestick pattern signifies the bearishness that is waiting ahead.
Shooting Star
This star is being identified in the top reversal chart pattern.
It has a small real candlestick body near the lower range with a long upper shadow.
The colour of the real body is not of upmost concern.
Inverted Hammer
This candlestick pattern is used in bottom reversal.
It has long upper shadow and small real candlestick body at the lower range.
The colour of this candlestick is not important.
This pattern will be more significant when the following day candlestick gaps up after inverted hammer had been
identified. |
Alex,U're absolutely correct. 
"When matters are unclear,be extra cautious.Take 1 step at a time. Success emerges slowly." - MaiTreYa 's 18th 
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