Basics of Candlestick & Patterns

Candlestick Basics

Japanese Rice Traders created them over 400 years ago Steve Nison is credited with introducing them into the U S markets Gregory Morris and Stephen Bigalow are the other 2 major candlestick gurus There are over 100 Candlestick patterns Candlesticks show investor sentiment more visual than OHLC bars

Sometimes referred to as a Black Candle

Bearish Candle

Sometimes referred to as a White Candle

Bullish Candle

Indecisive Candles (cont)

Spinning-Top

No one won the battle of the Bulls and Bears Body is less than 1/3rd of the candle range H L The tails are longer than the body

Bullish Candlestick Patterns

Engulfing
Morning Star

Hammer
Three White Soldiers

Kicking

Bullish Engulfing Definition

Bullish Reversal 63% of the time How to Identify it Candle 1 is a bearish candle Candle 2 completely engulfs the body of the candle 1 Stock in a downtrend or consolidating Pattern suggests downtrend has lost momentum and the bulls may be gaining strength Engulfing pattern is also the first two candles of the Three Outside patterns. Confirmation is suggested

Morning Star
Bullish Reversal 78% of the time How to Identify it First candle is a long black candle Second candle gaps down and trades within a small range and closes at or near its open. The third candle is a white candle Stock has in a downtrend or consolidating Pattern suggests the trading sentiment has changed and trend reversal is a high probability No confirmation is required or suggested

Morning Star - good

Bullish Kicker - good

Bullish Kicker - bad

Bearish Candlestick Patterns

Engulfing
Evening Star

Hanging Man
Three Black Crows

Kicking

Bearish Engulfing
Bearish Reversal 79% of the time How to Identify it First candle is a white candle Second candle is Bearish and its body completely Engulfs the first candles candle body Stock has been in an uptrend Pattern suggests the bears have taken control and the trend is about to reverse. Confirmation is suggested

Bearish Engulfing - Bad

Bearish Engulfing Good

Evening Star
Bearish Reversal 72% of the time How to Identify it First candle is a long white candle Second candle trades within a small range and closes at or near its open. The third candle is a black candle Stock is in an uptrend Pattern suggests the trading sentiment has changed and trend reversal is high probability No confirmation is required or suggested Note:

Evening Star

Evening Star

Hanging Man
Bearish Reversal 59% of the time How to Identify it Single candle pattern Candle can be bullish or bearish Signal considered stronger if candle bearish Candle body is less than 1/3 of the range H L Stock is in an uptrend Long tail implies sharp selloff after open and suggest more selling to come Requires confirmation

Bearish Kicker
Bearish Reversal 54% of the time How to Identify it The first candles open and the second candles open are the same. The price movement is in opposite directions from the opening price. The trend has no relevance in a Kicker situation. The signal is usually formed by surprise news before or after market hours. The price never retraces into the previous candle's trading range. No confirmation is required

Bearish Kicker - Bad

Bearish Kicker -Good