Letโs talk about one of the most important tools in trading: candlestick analysis. ๐ฏ๏ธ
Understanding candles isnโt just about looking at green and red โ itโs about reading market psychology in real time.
Each candlestick shows four things:
Opening price
Closing price
Highest price
Lowest price
But what really matters is what shape the candle takes โ because that gives us clues about what might happen next.
Here are a few key candle patterns and the fluctuations that often follow:
๐น Doji Candle โ A candle where the open and close are almost equal. It shows indecision.
โก๏ธ After a strong uptrend, a Doji might signal a reversal or pause. If the next candle is bearish, it often confirms trend exhaustion.
๐น Hammer Candle โ Small body, long lower wick. Found at the bottom of a downtrend.
โก๏ธ This often signals bullish reversal. It means sellers tried to push down, but buyers stepped in hard.
๐น Shooting Star โ Small body, long upper wick. Appears after an uptrend.
โก๏ธ Suggests bearish reversal. Bulls pushed up, but bears slammed the price back down.
๐น Engulfing Patterns โ When a full-body candle completely covers the previous one.
โ A bullish engulfing after a downtrend signals potential upside.
โ A bearish engulfing after an uptrend warns of incoming selling pressure.
๐น Marubozu Candle โ A candle with no wicks โ just full body, all one direction.
โก๏ธ Shows strong conviction. A bullish Marubozu often leads to momentum continuation. A bearish one might trigger sharp drops.
๐ Price behavior after candles isnโt guaranteed, but when combined with volume, support/resistance levels, and trendlines, they become powerful indicators.
For example:
โ A Doji at a strong resistance might mean sellers are getting ready.
โ A Hammer at key support often kicks off a bounce.
โ A Bearish engulfing at a peak might be your early exit signal.
The key to mastering candle analysis is context. Donโt just trade the pattern โ understand where it forms in the trend.
Stick to the basics, spot the patterns, and let the candles guide your entries and exits. ๐