Introduction to Candlesticks – Single Candlestick Patterns

Candlestick charts are most popular technical charts used by professional traders. In this introduction to candlesticks, we will understand how you can use a candlestick chart to improve your trading strategy.

The main reason, candlestick charts are popular as compared to other types of charts is because they are easy tools to see price changes.

They show the start, high, low, and end prices for a time, like a day. The fat part, called the “real body,” tells the difference between the start and the end. Skinny lines, or “wicks,” show the highest and lowest prices.

Introduction to Candlesticks - Single Candlestick Patterns 1

The color and shape of the candlestick reveal important information:

  • A green (or white) candlestick forms when the close is higher than the open, indicating bullish movement.
  • A red (or black) candlestick forms when the close is lower than the open, indicating bearish movement.
  • A long body shows strong buying or selling pressure
  • A short body shows little price movement and consolidation
  • Long shadows show that prices extended well past the open and close
  • Short shadows show that trading occurred near the open and close

I’m just waiting for the money to arrive and I just have to take it. I’m not doing anything now.

Jim Rogers

In this article, we’ll have a look at what candlesticks are and subsequently, at the popular individual candlestick patterns, every trader should know.

introduction to candlesticks

Let’s get started.

Introduction to Candlesticks

What are candlesticks or candles?

Candlesticks are the most common form of market trend analysis, historical analysis, and future forecasting. Due to their popularity and extensive study, candlestick chart formations form the most powerful form of technical indicators.

As a philosophical way of looking at things – Just as a burning candle illuminates the present and the future, so candles with their patterns illuminate the present and help to understand future trends.

A single candle indicates events that occurred during the chosen time period. It shows us the opening, maximum, minimum, and closing of the day (in the chosen time frame). The length of the candle helps us understand the volatility of the day. The longer the candle, the more volatile the day, and the shorter the candle, the less volatile the day.

A candlestick can be called a historical indicator because candlesticks are formed on market actions that already have taken place. But shaped candlesticks help to understand future trends and price patterns.

Before we get into the different candle patterns, I recommend you consider the following factors:

  1. The trend is your friend. Don’t work against the trend.
  2. As traders, you must remain flexible in your market views. Stubbornness usually leads to disaster.
  3. Analysis of historical data helps to understand future price trends. This is usually different for each instrument you trade.
  4. Avoid directional action on small candles (even in intraday trading). In general, trends are formed after candles of considerable duration.

Overview of Single Candlestick Patterns

In my experience, when set in big enough chart patterns, (30 min to Daily), these single chart patterns, act as good alerts to your trade.

That’s why with this introduction to candlesticks, I decided to provide a list of most effective visual indicators in single candlestick patterns.

Each candlestick represents the open, high, low, and close prices for the period it covers, offering a visual summary of trading action. Unlike line or bar charts, candlestick charts offer more detailed information, making them a preferred tool among traders

Best Single Candlestick Patterns

Several key single candlestick patterns are widely recognized for their ability to signal changes in market direction or sentiment:

  • The Spinning Top indicates market indecision, with its small body and similar-sized wicks on both ends suggesting a tug-of-war between buyers and sellers without a clear winner​​.
  • The Marubozu is unique as it shows strong buying or selling pressure, characterized by a candle without wicks, indicating that the market has moved significantly in one direction from open to close​​.
  • The Doji represents a state of equilibrium or indecision in the market, with the opening and closing prices virtually the same, appearing as a cross or plus sign. It often signals a potential reversal or pause in the current trend​​.
  • The Hammer and Hanging Man patterns signal potential trend reversals. The Hammer, appearing after a downtrend, suggests bullish reversal potential, while the Hanging Man, appearing after an uptrend, suggests bearish reversal potential​​.
  • The Shooting Star is a bearish reversal pattern occurring after an uptrend, signaling a potential downturn with its long upper wick and small lower body​​.

Marubozu Pattern

Marubozu candlesticks have long real bodies and little or no shadows.

A white(bullish) marubozu has no upper shadow and a black(bearish) marubozu has no lower shadow. These candlesticks form when the open equals the low (white) or high (black) and the close equals the high (white) or low (black).

This shows strong momentum and conviction on the part of either buyer (white) or sellers (black).

After a long advance, a black marubozu can act as a bearish reversal candlestick since it signifies that sellers had complete control from the open to the close.

Marubozu bearish candle Nifty
Nifty 15 min bar – Feb 28, 2024

After a long decline, a white marubozu can act as a bullish reversal candlestick since it signifies that buyers had total control from open to close.

Marubozu bullish candle Nifty

Marubozu candlesticks that form inside the real body of the prior candlestick are said to be stronger than those forming outside or engulfing the prior real body.

Spinning Top Pattern

Spinning tops have small real bodies that are vertically centered between long upper and lower shadows. The real body color is not important.

The pattern indicates indecision between buyers and sellers and a potential reversal if the spinning top forms after a long advance (bearish) or decline (bullish). The small real body shows little movement from open to close, and the shadows indicate that both buyers and sellers were active during the session.

Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the result was a standoff. After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend.

After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

The Doji Candle

A doji is a special type of candlestick pattern that forms when a security’s open and close prices are virtually equal for the given time period. The doji represents indecision or a tug-of-war between buyers and sellers, and the price ends up closing very near to where it opened.

Key characteristics of a Doji candle:

  1. The open and close prices are the same or very close to each other. This results in a thin or nonexistent real body.[1][2]
  2. The upper and lower shadows can vary in length, but there is usually some visible upper and/or lower shadow that shows the high and low prices extended past the open and close.[1]
  3. Doji conveys a sense of indecision or struggle between buyers and sellers. Neither the bulls nor bears were able to gain control and the result was essentially a draw.[1][5]

There are a few common types of doji patterns:

  1. Neutral or standard doji – open and close are in the middle of the price range, with upper and lower shadows of about equal length. Indicates indecision.[1][6]
  2. Long-legged doji – open and close are in the middle but the shadows are much longer, showing greater volatility and uncertainty.[1][3]
  3. Dragonfly doji – open and close are at the high of the day with a long lower shadow. Indicates sellers dominated trading but buyers pushed the price back to the open.[3][6]
  4. Gravestone doji – open and close are at the low of the day with a long upper shadow. Shows buyers dominated but sellers pushed the price back to the open by close.[1][3]

The relevance of a doji depends on the preceding trend or pattern. After a long uptrend, a doji signals the buying pressure may be diminishing and the uptrend could be nearing an end. After a long downtrend, a doji signals selling pressure may be decreasing and the downtrend could be nearing an end.[1][5]

However, doji patterns don’t necessarily mean a trend reversal will occur. They simply represent indecision. Any reversal signal indicated by a doji needs to be confirmed by the price action in the following candlesticks.

Doji are more significant when they occur at market turning points, after long trends, or at support and resistance levels.

In summary, doji candlesticks are important patterns that reveal a state of indecision in the market. Neither buyers nor sellers could gain the upper hand, and the price closed virtually where it opened.

By themselves, doji are neutral patterns, but they can signal a potential trend change if they form after an extended move up or down. Confirmation is required from subsequent candlesticks to determine if a reversal will occur or not.


The Hammer and Hanging Man

The Hammer and Hanging Man are both single candlestick patterns that look very similar but have opposite meanings depending on where they appear in a trend.

The Hammer is a bullish reversal pattern that forms after a decline in price. It has a small real body (the difference between the open and close) at the top of the candle and a long lower shadow that is at least twice the size of the real body[1]. This indicates that sellers pushed prices lower during trading but buyers were able to push prices back up to close near the open.

When a Hammer forms in a downtrend, it suggests the downtrend may be nearing an end and prices could start rising[1]. However, confirmation is needed, usually with a higher close the next day, before acting on the bullish signal[6].

The Hanging Man looks just like a Hammer but forms at the end of an uptrend[4]. It has a small real body at the top with a long lower shadow[3]. This indicates selling pressure that pushed prices lower during trading, but buyers were able to lift prices to close near the open.

When a Hanging Man forms in an uptrend, it’s a potential bearish reversal signal, suggesting the uptrend could be losing steam[5]. Traders will look for confirmation of the reversal, like a gap down or lower close the next day[4].

In summary, Hammers and Hanging Men have small real bodies, long lower shadows, and little to no upper shadow[1][3].

The key difference is Hammers are bullish and form after a decline, while Hanging Men are bearish and form after an advance.

The important thing to note is that both need further confirmation before acting on their signals.


The Shooting Star

Here is a friendly explanation of the shooting star candlestick pattern for a beginner to trading, using the Indian stock market as context:

The shooting star is a bearish reversal candlestick pattern that typically forms at the top of an uptrend. It has a small real body (the difference between the open and close) at the bottom of the candle and a long upper shadow that is at least twice the size of the real body[1][3][4]. There is little to no lower shadow[1][3].

This pattern indicates that the price opened and rallied significantly higher during the trading session, but then sellers stepped in and pushed prices back down to close near the open[1][4]. The long upper shadow represents the buyers who bought during the day but are now in a losing position as the price dropped back down[4].

When a shooting star forms after an uptrend, it suggests the uptrend may be nearing an end and the price could start falling[2][4]. However, confirmation is needed, usually with a down day following the shooting star, before acting on the bearish signal[4][6].

The psychology behind the shooting star is that after an uptrend, traders see the price continuing to rise and buy in, pushing prices up further[12]. However, by the end of the session, sellers overpower the buyers and drive the price back down, causing the shooting star shape to form[1][12]. This shows the uptrend is losing momentum.

In summary, the shooting star has a small body at the bottom, a long upper shadow at least twice the body size, and little to no lower shadow[1][3][13]. It forms after an uptrend and signals a potential bearish reversal, but requires confirmation before trading[4][6]. The pattern shows buying pressure that gets overwhelmed by sellers by the close[1][12].


Utilizing Single Candlestick Patterns

While single candlestick patterns are valuable, their signals are more reliable when combined with other technical analysis tools, such as Moving Averages or the Relative Strength Index (RSI), to confirm the patterns’ implications​​. This multi-tool approach helps in distinguishing between false signals and genuine market sentiment changes.

Frequently Asked Questions

What is a single candlestick pattern?

A single candlestick pattern is a pattern that is created by a single candlestick.

How do you read single candlesticks?

The single candlestick is the most basic candlestick pattern. It consists of a long body and a short body. The long body is the upper part of the candlestick, and the short body is the lower part of the candlestick. The upper body typically has a long wick and the lower body has a short wick. The long wick indicates that the price of the stock is rising, and the short wick indicates that the price of the stock is falling.

How do I learn candle patterns?

Candle patterns are a great way to learn how to read the cards. With a little practice, you will be able to see the patterns and learn how to read the cards with ease.

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