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CANDLESTICK
PSYCHOLOGY
Candlestick psychology refers to the emotional and psychological dynamics of market participants (buyers and sellers) as represented by candlestick chart patterns in technical analysis. Each candlestick visually summarizes a battle between bulls and bears over a specific time period, showing the open, high, low, and close prices.
Understanding candlestick psychology helps traders interpret who is in control (buyers or sellers), whether momentum is strong or weakening, and potential turning points in the market.
🔍 Key Elements of Candlestick Psychology
Candlestick PartPsychology Behind ItBody (Real Body)Shows the difference between the open and close. A large body = strong conviction.Wicks (Shadows)Indicate price rejection. Long upper wick = selling pressure; long lower wick = buying pressure.Color (Green/Red or White/Black)Green/white = buyers won. Red/black = sellers won.
🧠 Common Candlestick Patterns & Their Psychology
Bullish Engulfing
A small red candle followed by a large green candle.
Psychology: Bears tried to push price down, but bulls overpowered them → Possible reversal to the upside.
Bearish Engulfing
A small green candle followed by a large red candle.
Psychology: Bulls were initially in control, but bears dominated → Possible reversal to the downside.
Doji
Open and close are nearly the same.
Psychology: Market indecision or balance between buyers and sellers → Watch for breakouts or reversals.
Hammer (Bullish Reversal)
Small body, long lower wick.
Psychology: Sellers tried to push price down, but buyers strongly rejected it → Possible bottoming signal.
Shooting Star (Bearish Reversal)
Small body, long upper wick.
Psychology: Buyers pushed prices up, but sellers rejected the high → Possible topping signal.
🎯 Why Candlestick Psychology Matters
It reveals market sentiment without needing to look at order books.
Helps traders anticipate trend continuations or reversals.
Enhances decision-making for entries, exits, and stop-loss placements.
🧾 Sources and Further Reading:
"Japanese Candlestick Charting Techniques" by Steve Nison – the foundational book introducing candlestick psychology to the West.
Understanding candlestick psychology helps traders interpret who is in control (buyers or sellers), whether momentum is strong or weakening, and potential turning points in the market.
🔍 Key Elements of Candlestick Psychology
Candlestick PartPsychology Behind ItBody (Real Body)Shows the difference between the open and close. A large body = strong conviction.Wicks (Shadows)Indicate price rejection. Long upper wick = selling pressure; long lower wick = buying pressure.Color (Green/Red or White/Black)Green/white = buyers won. Red/black = sellers won.
🧠 Common Candlestick Patterns & Their Psychology
Bullish Engulfing
A small red candle followed by a large green candle.
Psychology: Bears tried to push price down, but bulls overpowered them → Possible reversal to the upside.
Bearish Engulfing
A small green candle followed by a large red candle.
Psychology: Bulls were initially in control, but bears dominated → Possible reversal to the downside.
Doji
Open and close are nearly the same.
Psychology: Market indecision or balance between buyers and sellers → Watch for breakouts or reversals.
Hammer (Bullish Reversal)
Small body, long lower wick.
Psychology: Sellers tried to push price down, but buyers strongly rejected it → Possible bottoming signal.
Shooting Star (Bearish Reversal)
Small body, long upper wick.
Psychology: Buyers pushed prices up, but sellers rejected the high → Possible topping signal.
🎯 Why Candlestick Psychology Matters
It reveals market sentiment without needing to look at order books.
Helps traders anticipate trend continuations or reversals.
Enhances decision-making for entries, exits, and stop-loss placements.
🧾 Sources and Further Reading:
"Japanese Candlestick Charting Techniques" by Steve Nison – the foundational book introducing candlestick psychology to the West.
Disclaimer: Includes third-party opinions. No financial advice. May include sponsored content. See T&Cs.
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