Candlestick Basics

 

Candlestick basics: Candlestick charts are an effective way of  seeing price movements. There are two basic candlesticks:

. Bullish candle: When the close is higher than the open (usually green or white)

.Bearish candle: When the close is lower than the open (usually red or black)

 

 

Candlestick parts                                                     

There are three main parts to candlestick:

Upper Shadow: The vertical line between the high of the day and the close(bullish candle)or open(bearish candle)

Real Body: The difference between  the open and close;coloured portion of the candlestick

Lower Shadow: The vertical line between the low of the day and the open(bullish candle)or close (bearish candle)

Candlestick patterns

The power of the candlestick charts is with various candlicksticks forming reversal and continuation patterns.maxmisewealthblogspot.com has many detailed explanations of this candlestick patterns; the links are given below:

.Bullish Engulfing Pattern

.Bearish Engulfing Pattern       

.Dark Cloud Cover

.Piercing Pattern

.Doji

.Dragonfly Doji

.Gravestone Doji

.Evening Star

.Morning Star

.Hammer

 

.Hanging Man

.Inverted Hammer

.Shotting Star

.Harami

.Tweezer Tops & Bottoms

 

 

 

 

 

Bullish Engulfing Pattern

Bullish Engulfing Pattern:The Bullish Engulfing Pattern is a bullish reversal pattern.It happens at the bottoms of a downtrend.The pattern consists of two candlesticks:

.Smaller Bearish Candle(Day 1)

.Larger Bullish Candle(DAY 2) )

The Bearish Candle real body of Day 1 is usually contained within the real body of the bullish candle of   Day 2.On Day 2,the price at the beginning gaps down,however,the bears do not get far before bulls taken control and push prices higher,filling in the gaps down  from the market beginning (open) and pushing prices past the previous day’s open.

The power of the Bullish Engulfing Pattern comes from the notable change of sentiment from a bearish gap down in the beginning, to a large bullish real body candle that closes at the highs of the day. Bears have overstayed their welcome and Bulls have taken control the market.

The chart below of the Yes Bank shows an example of a Bullish Engulfing Pattern occurs at the end of a downtrend.  

 

Bullish Engulfing Buy Signal

There are three methods to buy using Bullish Engulfing Pattern.The buy signals that are given below are ordered from the most aggressive to most conservative.

1.Buy at the close Day 2 when prices prices rallied upwards from the gap down in the open.A strong indication that the rally on Day 2 was significant and truly a reversal of market sentiment if there was a increase in volume that accompanied the large move upward in price.

2.Buy on the Day after Bullish Engulfing Pattern occurs, by waiting until the next day is continuing and was not just one day  happening like short covering rally.In the YES Bank chart above,A trader would likely to enter the market long(buy) on the day after Bullish Engulfing Pattern because buying continued.(next candle green one or white one)

3.After a trader sees the Bullish Engulfing Pattern,the trader would wait for another technical signal,mainly a price Break above the downward resistance line before entering a long (buy order)in the market.In  the YES BANK  chart above ,the downward resistance line after the Bullish Engulfing Pattern Day.

The Bullish Engulfing Pattern is one of the strongest Candlestick Pattern.Its opposite one is the the Bearish Engulfing Pattern.   

                                                                             

 

Bearish Engulfing Pattern

Bearish Engulfing Pattern: The Bearish Engulfing Candlestick Pattern is a bearish reversal pattern,It is happening at the top of an uptrend.The pattern consists of two candlesticks:

.Smaller Bullish Candle(Day 1)

.Larger Bearish candle(Day 2)

In general,  the bullish candle real body of Day 1 is contained within the real body of the bearish candle of Day 2.

The gapup (bullish sign) on Day 2,but the bulls do not push prices higher  before bears taken over and push prices further below,not only filling in  the gap,down from the day beginning open but also,pushing prices further down the previous day’s open.

With the Bearish Engulfing Pattern ,there is an notable change of sentiment from the bullish gap up in the beginning(open),to the larger bearish  real body candle that closed at the lows of the day.Bears have successfully taken charge for the day and possibly for the next few days.

 

 

In general,  the bullish candle real body of Day 1 is contained within the real body of the bearish candle of Day 2.

The gapup (bullish sign) on Day 2,but the bulls do not push prices higher  before bears taken over and push prices further below,not only filling in  the gap,down from the day beginning open but also,pushing prices further down the previous day’s open.

 

With the Bearish Engulfing Pattern ,there is an notable change of sentiment from the bullish gap up in the beginning(open),to the larger bearish  real body candle that closed at the lows of the day.Bears have successfully taken charge for the day and possibly for the next few days.

The follwing chart of ALAGABAD BANK(ALBK) explains Bearish Engulfing Pattern happening in daily chart.

 

Bearish Engulfing Sell Signal

Three methods for selling using the Bearish Engulfing Pattern are listed below in the order of most aggressive to most conservative.

1.Sell at the close of the Day 2. An even stronger indication to sell is given when there is substantial increase in volume that accompanies the large down move in price.

2.Sell on the day after the Bearish Engulfing Pattern occurs;by waiting until the next day to sell,a trader is sure that the bearish reversal pattern is for real and not for one day happening. In the chart above the trader would probably entered on the day after the  Bearish Engulfing Pattern because selling continued.(because next candle is black or red)

3.Usually traders wait for other technical signals such as a price break below the upward support line before entering a sell order.However in the case of ALBK  above sell signal happens on the next day after Bearish Engulfing Pattern occurred because the trend line break below support after Bearish Engulfing Pattern happening.