Stock / Share Market
by 5paisa Research Team Last Updated: 2022-06-01T18:23:19+05:30
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Every day, millions of investors and traders worldwide try their luck in the market, hoping to make incredible profits and conveniently fulfil their financial goals. But, only a few succeed. Proper research and knowledge are crucial to improving your performance.

Generally, you can find three types of traders or investors in the market. The first type focuses on price action, whereas the second type relies on technicals. The third type of investors trust news.

Price action trading is one of the oldest forms of trading. Price action traders analyse the chart by drawing support and resistance lines. Candlestick helps them make sense of the support and resistance lines better and place flawless trades.

So, if you want to learn how to read candlestick charts for day trading, you are in the right place. The following sections contain details of the highly effective but superbly simple trading strategy - the candlestick trading strategy.

Before understanding the top candlestick patterns for trading, let's understand the true meaning of candlestick.

Candlestick - A Primer

Candlestick traces its origin to Japan, and it came into existence in the 1700s. Every candlestick has five components - open, close, low, and high. The real body is the area between the open and close.

You may also see a wick - the straight line that goes up or comes down from the real body. The wick represents how far the buyer or sellers pushed the prices before they receded to the closing level. For example, if the highest point of a wick in a green candle is 100 and the close is 98, it means the buyers pushed the price to the highest price before eventually closing it at 98.

Candlestick can help you understand the price movement of a stock or index. If the candlestick's real body is in black or red, the price has gone down in the timeframe. In contrast, the price moves up if the real body is white, green, or empty. Timeframe refers to the period you have chosen for the candlestick. You can select any timeframe from a second to a year.

Let's now turn our focus to learning about the top candlestick trading patterns to help you trade more efficiently.

The Top Candlestick Patterns Expert Traders Rely On

Here are the top candlestick patterns expert traders rely on to improve their trading skills:

Bullish Patterns

Bullish candlestick patterns usually form after a downtrend and might signal a reversal. The following are the common candlestick patterns you can trust:


You can find this pattern at the end of a downward trend. Here, the lower wick is significantly longer than the real body. Hammer often indicates trend reversal and is more trustworthy in longer time frames.

Inverse Hammer

The inverse hammer looks like a hammer upside down. However, unlike a hammer, the wick is on the upper side. This pattern indicates that the sellers tried to push the prices down but the buyer resisted.

Bullish Engulfing

In this pattern, you will find two candles, in which the green candle will follow and be longer than a red candle. Interestingly, the second candle opens at a lower price than the first candle, but the buyers push the prices. Generally, investors invest in the stock/index when the second candle covers the first candle completely.

Piercing Line

Like the bullish engulfing, this is a two-stick pattern. The first is a long red candle and the second is a long green candle. Also, the second candle's opening is usually much higher than the first candle's closing.

Morning Star

This pattern works best in the daily timeframe and suits positional traders more than day traders. The morning star pattern usually forms after a considerable decline in prices. In this three-stick pattern, a short-bodied candle is situated between a red candle and a green candle.

Three White Soldiers

'Three white soldiers' is the easiest candlestick pattern. If you spot three back to back green candles with each candle opening at a higher price than the previous day's closing price. Also, the wicks will be short.

Bearish Patterns

Bearish candlestick patterns usually form after an uptrend and might signal resistance. The following are the common candlestick patterns you can look for before closing your long positions or initiating short positions:

Hanging Man

The hanging man is the exact opposite of a bullish hammer. However, unlike a hammer, the hanging man forms after an uptrend. This pattern sends a strong signal that the market is tired of rising and will soon fall.

Shooting Star

Shooting star looks like an inverted hammer that comes during an uptrend. The lower body is small and the wick is long. Usually, the candle would open with a gap and rally before plunging to a price above the open.

Bearish Engulfing

Bearish engulfing is the opposite of bullish engulfing. Here, a long red candle completely engulfs a short green candle, and it often signals a trend reversal. And, the longer the candle size, the more disruptive the trend might be.

Evening Star

The evening star looks like the morning star. Here, you will find a short candle between a green candle on one side and a red candlestick on the other.

Identify The Candlestick Pattern to Trade Like a Pro

Besides the candlestick pattern mentioned above, a few more patterns to study are Doji, Spinning Top, Falling Three Methods, Rising Three Methods, etc. Candlestick pattern has stood the test of time as one of the most effective trading strategies of all time. The strategy is simple, focused, and profitable.

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