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Candle Stick Patterns

Technical Knowledge by OMI
29 May 2025 by
P. Kalita


Mastering Candlestick Patterns in Technical Analysis

Mastering Candle stick Patterns in Technical Analysis

Candlestick charts are a cornerstone of technical analysis, offering visual insights into market sentiment and potential price movements. Each candlestick encapsulates four key data points: open, high, low, and close prices within a specific time frame. Recognizing and interpreting various candlestick patterns can significantly enhance trading decisions.

Understanding Candlestick Components

Body: Represents the range between the opening and closing prices. A filled (often red or black) body indicates a closing price lower than the opening, while a hollow (often green or white) body indicates a closing price higher than the opening.

Wicks (Shadows): The lines extending above and below the body, representing the highest and lowest prices during the time frame.

Common Candlestick Patterns (Top 10 Patterns)

1. Doji

Description: The opening and closing prices are virtually equal, resulting in a very short body.

Significance: Indicates market indecision; potential reversal signal.

2. Hammer

Description: A small body at the top with a long lower wick.

Significance: Suggests a potential bullish reversal after a downtrend.

3. Inverted Hammer

Description: A small body at the bottom with a long upper wick.

Significance: May indicate a bullish reversal after a downtrend.

4. Shooting Star

Description: A small body at the bottom with a long upper wick.

Significance: Signals a potential bearish reversal after an uptrend.

5. Bullish Engulfing

Description: A small bearish candle followed by a larger bullish candle that completely engulfs the previous one.

Significance: Indicates strong buying pressure; potential bullish reversal.

6. Bearish Engulfing

Description: A small bullish candle followed by a larger bearish candle that completely engulfs the previous one.

Significance: Indicates strong selling pressure; potential bearish reversal.

7. Morning Star

Description: A three-candle pattern: a long bearish candle, a short-bodied candle (Doji or Spinning Top), and a long bullish candle.

Significance: Signals a potential bullish reversal.

8. Evening Star

Description: A three-candle pattern: a long bullish candle, a short-bodied candle, and a long bearish candle.

Significance: Signals a potential bearish reversal.

9. Three White Soldiers

Description: Three consecutive long bullish candles with higher closes.

Significance: Strong bullish signal indicating continued upward momentum.

10. Three Black Crows

Description: Three consecutive long bearish candles with lower closes.

Significance: Strong bearish signal indicating continued downward momentum.

Application in Indian Markets

Understanding these candlestick patterns can be particularly beneficial when trading in Indian markets such as Nifty and Bank Nifty. For instance:

  • A Bullish Engulfing pattern on the Nifty 50 chart may suggest a potential upward movement, signaling a buying opportunity.
  • A Shooting Star pattern on the Bank Nifty chart could indicate a potential downward reversal, suggesting a selling opportunity.

By mastering these candlestick patterns, traders can make more informed decisions and better anticipate market movements.