CANDLESTICK PATTERNS
Plain English
Candlestick charts show you the open, high, low, and close for each period as a visual 'candle.' Specific patterns — like a hammer, doji, or engulfing candle — act as signals about the tug of war between buyers and sellers.
Going deeper
Candlestick patterns originated in Japanese rice trading and are now universal in technical analysis. Each candlestick shows: Open, Close (the body), High, and Low (the wicks/shadows). A green (hollow) candle means the close was above the open (bullish). A red (filled) candle means the close was below the open (bearish). Key reversal patterns: Hammer (small body, long lower wick — potential bullish reversal at lows), Shooting Star (small body, long upper wick — potential bearish reversal at highs), Doji (open equals close — indecision), Bullish Engulfing (large green candle engulfs prior red candle — buying overwhelms sellers), Bearish Engulfing (opposite). Multi-candle patterns like Morning Star and Evening Star signal larger reversals. Confirmation from volume and context makes patterns more reliable.
Examples
Hammer at Support
A stock has been falling for three weeks. It hits key support at $40. The daily candle forms a hammer — small body near the top, long lower wick. Sellers pushed price down intraday but buyers rescued it by the close. Combined with support, this is a high-probability reversal signal.
Bearish Engulfing at Resistance
A stock approaches resistance at $100 after a strong rally. A large red candle engulfs the previous day's green candle — the bears completely overwhelmed the bulls in one session. Volume is 2x normal. This signals the rally may be stalling.