A candlestick simply displays information about price movement in forex, crypto or any market trading that uses charts.

Let’s look at a few concepts to help you understand what candlesticks are. Understanding this concept would be much easier with just a mind’s eye picture of a real candlestick.

A candlestick opens and closes based on the time limit set by a viewer. e.g. 5 minutes, 4 hours etc.

A candlestick with raw data is known as “naked price action”, a candlestick coloured red is known as a bearish candlestick while a candlestick coloured green is called a bullish candlestick.

A bearish candlestick represents a downtrend i.e. fall in price over time while a bullish candlestick represents an uptrend i.e. rise in price over time.

Looking at the image above, you will figure out that each candlestick has straight lines above and below it, those lines are called “wicks”.

It is important to know that when the colour of a candlestick is green, it indicates that the buyers are in control of the market and when the colour of the candlestick is red, it indicates that the sellers are in control.

It is also important to know what the wicks represent: The space between the tip of the wick and the closing price in a bullish candlestick signifies the fact that the price had gone up that high and to that level before coming down to close while the space existing the closing price and the tip of the wick in a bearish candlestick signifies that the price had actually gone down to the level where the wick ended before closing at a point.

Now, we can now learn how the types of candlestick simply displays information: 

Doji Candlesticks

They have very tiny bodies that almost don’t appear but with longer wicks, this indicates that the market price opened and closed almost at the same time. This candlestick could either be bearish or bullish.

Momentum Candlestick

Are candlesticks that are extra long in a chart representing fast rise or fast fall in price over a period of time. Momentum candlesticks can either be bullish or bearish.

Hammer Candlestick

They have short bodies with long wicks at the bottom and short wicks at the top, indicating a strong bull in the market. This is a bullish candlestick.

Inverse Candlestick

It is the exact reverse of a hammer candlestick in wick position and length. In this case, the wick at the bottom is short while the wick at the top is longer. This is a bullish candlestick.

Bullish Engulfing

As the name implies, it is bullish.  A bearish candlestick seconded by a bullish candlestick that appears long enough to cover it including its wick is termed to be bullish engulfing.

Piercing Line

Two long candlesticks (bearish and bullish), where either of the candlesticks starts half way through the other with significant gap in between could simply be explained as a piercing line. The gap could either be a CME gap or as a result of down pull in the buying pressure.

Morning Star

It’s an instance of three candlesticks with a long bearish, a doji and another long bullish  candlestick appearing on the chart. This indicates that there will be an increase in price in the market.

3-White Soldier

This is indicated when three consecutive bullish candlesticks having short wicks formed within 3 days appear on the chart. This indicates that there would be a downtrend.

 We do also have bearish types of candlesticks

Hanging Man

It is a bearish hammer-like candlestick that appears after an uptrend. It is important to know that the difference between a hammer candlestick and a hanging man is the positioning on the chart.

Shooting Star

It is an inverse-hammer-like having different positioning on the chart.

Bearish Engulfing

It’s a representation of a bullish candlestick seconded by a bearish candlestick that could swallow up the bullish candlestick by size. 

Evening Star

It comprises three candlesticks that consist of a long bullish, a doji and a long bearish candlestick. It indicates that there would be a downtrend in the market price. 

3-Black Crows

It is otherwise known as the rising three. These type of candlestick comprises three consecutive bearish candlesticks that formed within 3 days. It indicates that there would be an uptrend in market price.

Dark Cloud Cover

It’s a complete illustration of a momentum bullish and bearish before a normal sized candlestick. It bears so much similarity with the piercing line candlestick. In this case, the bearish candlestick starts halfway through the first momentum bullish candlestick (an effect of selling pressure), then the second momentum candlestick starts somewhere before the base of the bearish candlestick (an effect of buying pressure).

Spinning top

The spinning top candlestick pattern has a short body centred between wicks of equal length. The pattern indicates indecision in the market, resulting in no meaningful change in price. It could be either bullish or bearish.

Falling Three Methods

Three-method formation patterns are used to predict the continuation of a current trend, be it bearish or bullish. It shows traders that the bulls do not have enough strength to reverse the trend.

Rising Three Method

It comprises three short reds sandwiched within the range of two long greens. The pattern shows traders that, despite some selling pressure, buyers are retaining control of the market.

Key Points

• A candlestick simply displays information about price movement in forex, crypto or any market trading that uses charts.
• Candlesticks are categorized into bullish and bearish types.
• Every candlestick represent a trend in the price movement.