Candlestick patterns are widely used in technical analysis to predict price movements in the stock market. Originating from Japan in the 1700s, these patterns help traders analyze market sentiment and make informed trading decisions. Each candlestick represents price movement over a specific time frame, such as a day, an hour, or a minute.
Understanding Candlestick Components
A candlestick consists of three key parts:
- Body – The rectangular area showing the opening and closing prices.
- Wick (Shadow) – The thin lines above and below the body, representing the highest and lowest prices.
- Color – A green/white candle indicates a price increase (bullish), while a red/black candle signifies a price decrease (bearish).
Types of Candlestick Patterns
Candlestick patterns are broadly classified into bullish, bearish, and neutral formations.
1. Bullish Candlestick Patterns (Indicate Uptrend)
- Hammer – A small body with a long lower wick, signaling a possible trend reversal from a downtrend to an uptrend.
- Bullish Engulfing – A large green candle completely engulfs the previous red candle, suggesting strong buying pressure.
- Morning Star – A three-candle pattern showing a transition from
