HOW TO READ CANDLESTICK CHARTS.

Imagine what it would be like if you knew how to read candlestick charts for day trading
even as a beginner.

That would mean more money to your portfolio!

Here's why:

Your ability to read and understand red or green candlestick charts will save you huge
losses.

The big idea is, you'll know just the right time to dive into the market either to buy and
sell because, traders rely on Japanese candlestick charts to observe price action of
financial assets. Also candlestick graphs give twice more data than a standard line chart
and interpret price data in a more advanced way and offer very distinct, comprehensive
patterns.

And if you can spot the right moment as a cryptocurrency trader, then you've become a
demi-god in your own world.

So, are you ready? We’ll walk you through the whole process.

Table of Content
➢ What are candlesticks
➢ Japanese candlestick
➢ Bullish and Bearish candlestick
➢ Types of candle sticks and meaning
➢ Single Candle pattern
• Hammer Family
• Doji and types (explained)
• Spinning Top and Bottom
• Bullish and Bearish Marubozu
➢ Double candle pattern
• Bullish and Bearish engulfing
• Tweezer top and bottom
• Bullish and Bearish Harami
➢ Triple Candle Pattern
• Morning and Evening Star
• Three white soldiers
 • Three black crows

What are Candlesticks

Cryptocurrency candlesticks are red or green bars that predict the following:

● Whether an asset will likely spike or dump in price.

● Whether an asset will continue spiking or dumping in price.

Don't forget!

Now, a spike or dump takes a certain shape or pattern (later topic), which also helps you
to know the speed at which the increase or decrease in price will occur.

Some candlestick patterns have been explained with examples below to give you a
better understanding.

Japanese Candlestick

The Japanese candlestick is a technical analysis tool that tells you the price action during
a given time frame.

The time frames can be one day, one hour, or 30-minutes.

Also, this candlestick shows the following:

● Open price
● Close price
● High(est) price
● Low(est) price
● Real body
● Upper shadow
● Lower shadow

But what do these all mean?

Now take a deep breath and slowly absorb each of these!

● A green/white or hollow candlestick is shown if the close is above the open.

● A red/black or filled candlestick is shown if the close is below the open.
● The hollow or filled part of the candlestick is called the real body or body.
● The straight lines poking above or below the body are called shadows
● The top of the shadow is called high, while the bottom is called low.
 Figure 1

So, how can you read Japanese candlestick charts? Read on to find out!
Bullish and Bearish Candlestick

Recall that a hollow candlestick is green or white, and as such, it is a bullish candlestick.

Now you may have already guessed that a filled candlestick is a bearish candlestick.

Figure 1.1

Bullish Candlestick

A bullish candlestick forms when the price opens at a certain level and closes at a
higher price. This candlestick represents a price increase. The default color of the
bullish Japanese candlestick is green.

Bearish Candlestick

A bearish candlestick forms when the price opens at a certain level and closes at a lower
price. This candlestick shows a price drop. The default color of the bearish Japanese
candle is red.

When chart periods start and end, different candlesticks line up next to each other. This
is what forms the Japanese candlestick chart.
 Figure 1.2

Now a chart involves many candlesticks as you can see in the figure 1.2. The graph you
see above is a 4-hour chart where each of the candlesticks represents a four-hour
period. In this relation, there are many chart time frames as stated previously and each
candlestick represent the timeframe in which you have switched to.

The most common are:

• 1-minute (M1)
• 5-minute (M5)
• 15-minute (M15)
• 30-minute (M30)
• 1-hour (H1)
• 4-hour (H4)
• Daily (D1)
• Weekly (W1)
• Monthly (M1)

The smaller chart time frame you switch to, the closer you look into price action.
It is like you are zooming in the chart. Let’s say you are looking at an H4 chart like the
one above. When you switch to the H1 chart, you will have four times more candles.
Each H4 period crushes into four H1 candles.
Types of Candlesticks and Meaning

Take a closer look at the shapes below, the various types of Japanese candlesticks and
their meaning have been outlined.

Figure 1.3
Let’s examine each of these!

1. Single Candle Pattern:

Any candle on your chart can take one of these forms:

a. Hammer Family:

A small body on a long tail that gives a resemblance to a real-life hammer is a hammer
pattern.

The Hammer candle family is a single candlestick pattern. Hammers have a long
upper or lower candlewick and a small candle body at the opposite side. Each hammer
candle is a reminder that a price reversal might be on its way.

o Hammer

A Hammer candle will have a long lower candlewick and a small body in the
upper part of the candle. Hammers come during bearish trends and suggest that
the price might reverse.
 o Inverted Hammer

The inverted hammer has a long upper candlewick and a small body in the lower
part of the candle. Same as the hammer, an inverted hammer appears during
bearish trends. It suggests a price reversal.

o Hanging Man

The hanging man looks the same as the hammer but it appears during bullish
trends and it suggests that a new bearish trend might appear.

o Shooting Star:

The shooting star has the same structure as the inverted hammer. Again,
it appears during bullish trends and is a reminder that the increase could stop
and that we’ll expect a price decrease.

Figure 1.4

This image on figure 1.4 will give you a better idea of the Hammer candle family.
The green and the red arrows represent the price move. As you see, the candle is
the same. But, the previous trend and its direction give different signals. Notice that
every candle from the Hammer family could be bearish or bullish. This doesn’t matter
as the meaning is the same – reversal.

b. Doji and Types:

A Doji pattern is formed when:

● The opening and closing prices are the same or,

● The opening and closing prices are close to each other.
The Doji is a single candle pattern. It is the only candlestick that is neither bearish nor
bullish. This is so because the Doji represents a state where the price closes exactly
where it has opened. For this reason, the Doji has no candle body and it looks like a
dash.

Some types of Dojis are:

Figure 1.5

o Doji Star or Neutral Doji

A Neutral Doji is a small candlestick pattern. The stock open and close at the
middle of the day’s high and low. This pattern forms when buying and selling
activity is at equilibrium. The prior trend and the Doji pattern determine the
trend’s future direction

o Long Legged Doji

A Long Legged Doji occurs when the open and close is the same price but,
with a long upper and lower wick (relative to the earlier candles).
This means the market is undecided after a huge expansion in volatility (which
usually occurs after a big news event).

o Four Price Doji

A four priced doji occurs when the open, close, high and low prices are the
same. It’s essentially a horizontal line.
This means that the price did not change at all during the period of a
candlestick.

It’s common to see the Four-Price Doji in markets where trading volume and
liquidity is extremely low.

Now…
 If you see many Four-Price Dojis on the chart – stay out of this market.

o Gravestone Doji:

A Gravestone Doji is a bearish reversal candlestick pattern.

Think of a gravestone and you won't miss a Gravestone once you see one.

This pattern is formed when:

● The open and close occur at the low of the period.

o Dragonfly Doji:

A Dragonfly Doji signals an uptrend’s reversal. It is an inverse of Gravestone

doji candlestick

This pattern is formed when:

● The open and close occur at the high of the period.

c. Spinning Top and Bottom:

This pattern can either be formed at the peak of an uptrend, middle of the trend or at the
bottom of a downtrend.

But remember, this pattern can either signal a bear or bull run and as such, you must
wait out to see the next price movement.

But here's something to work with:

A Spinning Top pattern formed at support level may signal an entry point, while a
Spinning Top pattern that forms at a resistance level may signal an exit point.
 Figure 1.6

d. Bullish and Bearish Marubozu:

There is also a Marubozu candlestick pattern which is a single candle formed anywhere
in the trend.

It can either be a long and bullish candle or a long and bearish candle.

Here's a simple way to differentiate both:

A bullish Marubozu candle has open and low which are approximately equal, and the
high and close are also approximately equal.

On the other hand, a bearish Marubozu candle has open and high that are approximately
equal, and close and low that are approximately equal.

What to do in either of these scenarios:

A bullish candle formed at the support of an uptrend is an entry point while a bearish
candle formed at resistance is an exit point.
 Figure 1.7

2. Double Candle Pattern:

Two candlesticks being formed in succession can either take the shape of the following:

a. Bullish and Bearish Engulfing:

The bullish engulfing pattern appears during bearish trends. It consists of a bearish
candle followed by a bullish candle that engulfs the first candle. A bullish trend is more
likely to occur afterward.

You can easily spot it when a smaller down (red) candlesticks' body is engulfed by a
larger up (green) candlestick.
 Figure 1.8

Alternatively:

Each time you see a bearish engulfing pattern, then it is an indication that the bears are
in control of the market.

The bearish engulfing appears during bullish trends. It consists of a bullish candle,
followed by a bearish candle that engulfs the first candle. A bearish trend might occur
afterward.

What does a bearish candlestick look like?

A large body (red) completely engulfs the body of the previous candlestick (green).

This pattern is formed as a result of a lower closing price than the opening price.

b. Tweezer Top and Bottom:

The Tweezer Top pattern is a bearish reversal pattern that is displayed at the top of
uptrends.

However, a Tweezer Bottom pattern is a bullish reversal pattern that is formed at the
bottom of downtrends.
 Figure 1.9

c. Bullish and Bearish Harami:

Another double candle pattern, is the Harami, a Japanese word that means pregnant.

Thus, it shows a green candlestick often known as the mother, with a small candlestick,
seen as the child.

That being said, this pattern is formed when the second candle is completely within the
range of the first candle's body.

A bearish harami signals a reversal in price, and it can be spotted when a large green
candle is followed by a red candle with a smaller body.

Alternatively, a bullish harami signals that a bearish trend may be coming to end.

Figure 2.0

3. Triple Candle Pattern:

In the case of three candle patterns, be on a close watch for any of the following:

a. Morning and Evening Star:

The morning and the evening star are triple candle patterns. They also forecast
reversals.

o Morning Star

The morning star pattern occurs during bearish trends. It starts with a bearish
candle and is followed by a small bearish or bullish candle that gaps down.
Then the price gaps up and forms a bigger bullish candle. Notice that the third
candle should cover at least half the body size of the first candle.

o Evening Star

The evening star is the opposite of the morning star. It appears during bullish
trends. The pattern starts with a bullish candle, followed by a small bearish or
bullish candle that gaps up. Then, the price gaps down and forms a bigger
bearish candle. Here, the third candle should cover at least half the body size
of the first candle.

Figure 2.1

So, prices have been falling and a morning star pattern comes up, it is a ray of hope that
there could be a spike.

In contrast, an evening star signals the beginning of a downtrend in a booming market.

b. Three White Soldiers:

Three Soldiers are three white or green candlesticks that appear in succession.

They are bullish signals that form after a period of downtrend or price consolidation to
show a buying pressure.
 Figure 2.2

c. Three Black Crows:

Three Black Crows are three black or red candlesticks that appear in succession.

They indicate the start of a bearish downtrend since the selling pressure has been more
than the buying pressure for three consecutive days.

Figure2.3

Conclusion

Now that you know how to read and understand candlestick charts, it's time to put it
into practice.