First of all, let’s learn what is a candlestick which is not difficult.
Munehisa Homma, a Japanese rice trader, is considered the developer of the candlestick charts in the 18th century. Steve Nison introduced them to the western world in his book Japanese Candlestick Charting Techniques which is considered one of the best books for trading.
The following image is informative. The rectangle is called the body and the lines are called the tails of the candlestick. each candlestick in a chart shows the price data for a specific period. For example, in a 1-minute chart, each candlestick represents the prices movements during 1 minute.
In a bullish candlestick (green), the closing price is higher than the opening and that's why the upper side of the body shows the closing price while the lower side shows the opening price.
In a bearish candlestick (red), the closing price is lower than the opening price so the upper side of the body shows the open while the lower side shows the close.
The vertical lines coming off the body are tails, shadows, or wedges. Pay attention that in both types of candlesticks the upper tail shows the highest price and the lower tail shows the lowest price during the period.
When the opening and closing prices are the same or very near the same price then the candle would like this and is called a Doji Candlestick.
In the above image, we can see different examples of Doji Candlesticks. In example 3, the closing and the opening price are the same as the lowest price so there is no lower tail.
Number one is called a Doji Star or just Doji. If the tails of a Doji Star are long then we call it a Long-Legged Doji. Number 3 and 4 are called Gravestone Doji and Butterfly Doji respectively.
If all the four types of prices in a candlestick are the same or very close to each other then it becomes just a horizontal line and is called a Four price Doji.
Hammer is a bullish candlestick with the same close and high.
Inverted Hammer is a bullish candlestick with the same open and low.
Hanging Man is a bearish candlestick with the same open and high.
Shooting Star is a bearish candlestick with the same close and low.
In the next part, we explore patterns including more than one candlestick.
- The source of historical facts: https://en.wikipedia.org/wiki/Candlestick_chart
- The source of scientific facts: Japanese Candlestick Charting Techniques by Steve Nison
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