Technical Analysis

Candlestick charts originated in Japan and provide rich information about price action, sentiment, and potential future movements. Basic Candlestick Structure: • Body: Difference between opening and closing prices • Wicks/Shadows: Highest and lowest prices during the period • Green/White: Closing price higher than opening (bullish) • Red/Black: Closing price lower than opening (bearish) Single Candlestick Patterns: 1. Doji: • Opening and closing prices are nearly equal • Indicates indecision in the market • Potential reversal signal at trend extremes • More significant after strong trends 2. Hammer: • Small body at top, long lower wick • Appears after downtrend • Bullish reversal signal • Confirms if next candle closes higher 3. Shooting Star: • Small body at bottom, long upper wick • Appears after uptrend • Bearish reversal signal • Shows rejection at higher prices 4. Spinning Top: • Small body with long wicks on both sides • Indicates indecision and potential reversal • Context matters - more significant at extremes • Often precedes trend changes Multiple Candlestick Patterns: 1. Engulfing Patterns: • Bullish Engulfing: Large green candle engulfs previous red candle • Bearish Engulfing: Large red candle engulfs previous green candle • Strong reversal signals • More reliable with high volume 2. Morning/Evening Star: • Three-candle reversal patterns • Morning Star: Bullish reversal (gap down, small candle, gap up) • Evening Star: Bearish reversal (gap up, small candle, gap down) • Highly reliable when complete 3. Harami Patterns: • Inside candle pattern • Second candle's body is within first candle's body • Indicates potential trend change • Bullish harami after downtrend, bearish harami after uptrend Pattern Reliability Factors: • Volume confirmation increases reliability • Position in trend (reversal vs continuation) • Market context and overall sentiment • Time frame - longer time frames more reliable Trading with Candlestick Patterns: • Wait for confirmation before acting • Use in conjunction with other indicators • Consider risk-reward ratio • Set appropriate stop-losses