Anatomy of a Candlestick
Each candlestick represents price movement over a specific time period (e.g. 1 hour, 1 day) and shows four price points: open, high, low, and close. Candlestick color — usually green/white for a rise and red/black for a drop — helps traders quickly read market sentiment visually.
The Doji Pattern
A doji forms when the open and close prices are nearly equal, producing a very thin candlestick body. This pattern indicates market indecision — the strength between buyers and sellers is balanced, and it's often a signal of a potential trend reversal, especially when it appears after a strong trend.
Hammer & Hanging Man Patterns
A hammer has a small body near the top with a long lower wick, usually appearing after a downtrend and indicating a potential reversal upward. A hanging man has a similar visual shape but appears after an uptrend, indicating a potential reversal downward.
Engulfing Patterns
A bullish engulfing occurs when a green/white candlestick completely "engulfs" the body of the previous red/black candlestick, indicating a potential reversal upward. Conversely, a bearish engulfing occurs when a red/black candlestick engulfs the previous candlestick's body, indicating a potential reversal downward.
Important: Context Always Wins
A single candlestick pattern is rarely enough to make a trading decision on its own. These patterns are most effective when used alongside other context such as support/resistance levels, the prevailing trend, and trading volume. Using candlestick patterns in isolation without additional confirmation risks producing false signals.
Next Step
Understand how leverage works before practicing your analysis with real capital.
Read: Understanding Leverage & Margin