Reading Japanese candlesticks: The price candle consists of three elements: the body, color, and shadow. The body of the candle determines the opening price of the session and its closing price, and the color of the candle indicates the direction of price movement upwards or downwards, while the shadow of the candle, which is above and below the candle, represents the highest and lowest prices recorded during the session.
Single Japanese candlestick patterns
It is one of the easiest and most widely used Japanese candlestick patterns among traders, consisting of only one candle.
Rounded top candle (neutral)
It is a pattern that consists of a price candle whose body size is short and has equal upper and lower shadows that exceed the size of the candle, indicating indecision in the market due to the balance between selling and buying forces. Consequently, this pattern is interpreted as a period of change in price direction.
The rounded top pattern in itself is neutral and does not reflect price movement, but it serves as a precursor to this change as it indicates weakness in the current price trend.
Doji candle (neutral)
It is a pattern consisting of a price candle whose body size is nearly nonexistent, meaning that the opening price and closing price are at the same point or very close, making the candle body absent and the shadows of different lengths.
The doji candle represents a struggle between sellers and buyers with no profit for either side, and the doji candle alone is a neutral signal, but it is used with other patterns to form reversal patterns. When a doji candle forms at the end of an upward or downward trend, it may indicate a significant likelihood of the end of that trend.
Types of doji candles
1. Long-legged doji candle (long-legged doji) has long upper and lower shadows.
2. Gravestone doji candle (gravestone doji) has only an upper shadow without a lower shadow or a short upper shadow.
3. Dragonfly doji candle (dragonfly doji) has only an upper shadow without a lower shadow or a short upper shadow.
4. Four price doji candle (four price doji) has no upper or lower shadow.
Marubozu candle (reversal)
It is a price candle that consists only of the candle body without any upper or lower shadow, indicating the strength of the trend in the market, whether upward or downward, due to the dominance of sellers or buyers over price movement.
The bullish marubozu has the opening price as the lowest price and the closing price as the highest price, while the bearish marubozu has the opening price as the highest price and the closing price as the lowest price, and it is preferable to wait for confirmation of a price movement reversal to the upside or downside after the marubozu candle.
Hammer candle (reversal)
It is a price candle with a short body and a long lower shadow, and the body of the candle should be two or three times smaller than the length of the lower shadow.
The hammer candle comes at the end of a downward trend and is a signal for reversing the direction to the upside, indicating that selling forces have exhausted by hitting the lowest level, allowing buying forces to increase, pushing the price higher to close at a high level away from the lowest level recorded, and it is preferable to wait for confirmation of a price movement reversal to the upside after the hammer candle.
Inverted hammer candle (reversal)
It is similar to the hammer candle pattern, but the difference is that the shape of the candle is inverted where the shadow is upper, and the inverted hammer candle comes at the end of a downward trend and is a signal for reversing the direction to the upside, and it is preferable to wait for confirmation of a price movement reversal to the upside after the inverted hammer candle.
Hanging man candle (reversal)
It is a candle identical to the hammer candle, but the only difference is that the hanging man candle comes at the end of an upward trend in the opposite direction downwards, unlike the hammer candle.
The candle indicates the end of the dominance of buying forces in the market after facing strong resistance and the price does not continue in the upward direction, indicating that the price direction is about to change. If the hanging man candle is a bearish candle, it is a stronger signal for the possibility of market reversal compared to when the candle is bullish. It is preferable to wait for confirmation of a price movement reversal to the downside after the hanging man candle.
Shooting star candle (reversal)
It is a candle identical to the inverted hammer candle, but the only difference is that the shooting star candle comes at the end of an upward trend and is a signal against the trend downwards, unlike the inverted hammer candle.
The shooting star candle usually forms after a bullish price gap, then the price drops below the opening price and closes beneath it. The shooting star can close above the gap and be a bullish candle or below the gap and be a bearish candle, but both candles indicate that a reversal may be imminent, and it is preferable to wait for confirmation of a price movement reversal to the downside after the shooting star.
Double Japanese candlestick patterns
These are patterns that give signals consisting of two price candles that indicate a potential reversal area for the current trend in the market.
Engulfing candle pattern (reversal)
It is a two-candle reversal pattern that can be either positive or negative; the positive pattern comes at the end of a downward price trend and consists of a large bullish candle that engulfs the previous bearish candle.
The larger the body of the bullish candle, the greater the engulfing of the previous candle, thus increasing the strength of the bullish pattern, making it capable of reversing the price direction upwards, especially if the pattern occurs at a strong support level or at the end of an extended or entire downward trend, which increases the chances of reversal.
While the negative engulfing pattern comes at the end of an upward trend and consists of a large bearish candle that engulfs the previous bullish candle.
The larger the body of the bearish candle, the greater its engulfing of the previous candle, thus increasing the strength of the bearish pattern, making it capable of reversing the price direction downwards, especially if the pattern occurs at a strong resistance level or at the end of an extended or complete upward trend, which increases the chances of reversal.
Dark cloud cover candle pattern (reversal)
It is a negative reversal pattern consisting of two candles that comes at the end of an upward trend where a large bearish candle forms and its closing price is at or below the midpoint of the previous large bullish candle, while the opening price of the second bearish candle is above the closing price of the first bullish candle.
Piercing candle pattern (reversal)
It is the opposite of the dark cloud cover candle pattern and is a positive reversal pattern consisting of two candles that comes at the end of a downward trend where a large bullish candle forms and its closing price is at or above the midpoint of the previous large bearish candle, which should also have a large body, while the opening price of the second bullish candle is below the closing price of the first bearish candle.
Triple Japanese candlestick patterns
These are patterns that give signals consisting of three price candles that indicate a potential reversal area for the current trend in the market or a signal for the continuation of the current price trend, and three-candle patterns often provide strong signals for the upcoming movement as confirmation comes from three candles in three consecutive time frames.
Morning star candle pattern (reversal)
It is a reversal pattern consisting of three price candles that forms at the end of a downward trend, where the first candle is the last candle in the downward trend and is a bearish candle, then the second candle forms. It has a small body and preferably forms a price gap to increase the strength of the pattern, then the third candle forms and is a bullish candle, with its closing price higher than the midpoint of the first bearish candle.
The morning star candle pattern forms when the price reaches a point of hesitation and uncertainty in direction after a downward trend, then the price begins to recover, which is considered a signal for a reversal of price movement upwards.
Three black crows candle pattern (reversal)
It is a bearish reversal pattern consisting of three price candles that forms at the end of an upward trend, consisting of three consecutive bearish candles with relatively large bodies, where the second candle has a body larger than the first candle and has a short or nonexistent shadow, and its closing price is close to the bottom of the first candle.
The third candle has a body larger than or equal to that of the second candle and has a short or nonexistent shadow and its closing price is near the bottom of the second candle.
Three rising candles pattern (continuation)
It is a downward continuation pattern that comes in a downward direction, where the pattern consists of a large bearish candle followed by three small bullish candles, then another large bearish candle, and the three bullish candles are within the range of the first and last bearish candles.