Candlesticks are available in many shapes and sizes, and each shape tells the trader something different about the market sentiment. Whether it’s long bodies, long or short shadows, or a combination of all of them, each candle tells its own story.
In our chart below, we can see that the candlestick on the left side is black (it can also be red) and represents the price action in a specific period: 1 minute, 5 minutes, 1 hour, 1 day, 1 week, etc. The opening price is above the closing price, and the price range of the period oscillates between the high and low, which are highlighted at the top and bottom of the shadow.
The candle on the right is white (or green), with the opening price at the bottom of the body and the closing price located at the top of the body.
Now, you might think that black (red) represents bearish sentiment and white (green) represents bullish sentiment. In long-bodied candles, like the ones above, this is usually correct, and the longer the body about the entire candle, the better. So, here, the black candle represents bears (or sellers) in control, where bears were willing to sell at these prices. The white candle represents bulls (or buyers) in control, where bulls were willing to buy at these prices, thus pushing the price higher.
Here’s a list of the main types of candlesticks used in chart analysis:
Bullish Candlestick: A bullish candlestick indicates a price increase during the considered period. The candle’s body is green or white, with the opening below and the closing above the previous period.
Bearish Candlestick: A bearish candlestick indicates a price decrease during the considered period. The candle’s body is red or black, with the opening above and the closing below the previous period.
Doji: A doji is a candle with a very small or nearly non-existent body, where the opening and closing are very close to each other. It represents the balance between buyers and sellers and can indicate a potential trend reversal.
Hammer: A hammer is a candle with a small lower body and a long upper shadow. It indicates a potential bullish trend reversal after a bearish phase.
Shooting Star: A shooting star is a candle with a small upper body and a long lower shadow. It indicates a potential bearish trend reversal after a bullish phase.
Engulfing Pattern: The engulfing pattern occurs when a bullish or bearish candle completely “engulfs” the entire body of the previous candle. This pattern can indicate a strong trend reversal.
Morning Star: The morning star is a pattern composed of three candles. It starts with a bearish candle followed by an indecision candle (like a doji or a small body) and ends with a bullish candle. This pattern indicates a potential bullish trend reversal.
Evening Star: The evening star is the opposite of the morning star. It starts with a bullish candle followed by an indecision candle and ends with a bearish candle. This pattern indicates a potential bearish trend reversal.
Hanging Man: The hanging man is similar to the hammer but occurs during a bullish trend. It has a small upper body and a long lower shadow. It can indicate a potential bearish trend reversal.
Inverted Hammer: The inverted hammer is similar to the shooting star but occurs during a bearish trend. It has a small lower body and a long upper shadow. It can indicate a potential bullish trend reversal.
These are just some of the main types of candlesticks used in chart analysis. Each type of candle provides specific indications about price behavior and can be used to make trading decisions.
