Japanese Candlesticks

The interpretation of candlestick charts is based primarily on patterns, the most popular of which are explained below.

Bullish Candlestick Patterns

Long white

Hammer

Piercing pattern

Bullish Engulfing

Morning star

Morning doji star

Long White Candlestick – This is a bullish candlestick that occurs when prices open near the low and close significantly higher, near the periods high.

Hammer – This is a bullish candlestick if it occurs after a significant downtrend. If the candlestick occurs after a significant up-trend, it is called a hanging man (see below). A hammer is identified by a small real body (i.e. small range between the open and closing prices) and a long lower shadow (i.e. the low is significantly lower than the open, high and close). The body can be empty or filled-in.

Piercing Candlestick – This is a bullish pattern and the opposite of a dark cloud cover. The first candlestick is a long black candlestick and the second is a long white candlestick. The second candlestick opens lower than the first candlesticks low, but it closes more than halfway above the first candlesticks real body.

 

Bullish Engulfing Candlestick – This pattern is strongly bullish if it occurs after a significant downtrend (i.e. it acts as a reversal pattern). It occurs when a small bearish (filled in) candlestick is engulfed by a large bullish (empty) candlestick).

 

Morning Star – This is a bullish pattern signifying a potential bottom. The ‘star’ indicates a possible reversal and the bullish (empty) candlestick confirms this. The star can be empty or filled-in.

 

Bullish / Morning Doji Star – A ‘star’ indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g. as in the morning star, above) before trading a doji star. The first candlestick can be empty or filled in.


Bearish Candlestick Patterns

Long black

Hanging man

Dark cloud cover

Bearish engulfing

Evening star

Evening doji star

Shooting star

 

Long Black Candlestick – This is a bearish candlestick. It occurs when prices open near the high and close significantly lower near the periods low.

 

Hanging Man – These candlesticks are bearish if they occur after a significant uptrend. If this pattern occurs after a significant downtrend, it is called a hammer. They are identified by small real bodies (i.e. a small range between the open and closing prices) and a long lower shadow (i.e. the low was significantly lower than the open, high and close). The bodies can be empty of filled-in.

 

Dark Cloud Cover – This is a bearish pattern. The pattern is more significant if the second candlestick’s body is below the center of the previous candlesticks body.

 

Bearish Engulfing Candlestick – This pattern is strongly bearish if it occurs after a significant uptrend (i.e. it acts as a reversal pattern). It occurs when a small bullish (empty) candlestick is engulfed by a large bearish (filled in) candlestick.

 

Evening Star – This is a bearish pattern signifying a potential top. The ‘star’ indicates a possible reversal and the bearish (filled in) candlestick confirms this. The star can be empty of filled in.

 

Bearish / Evening Doji Star – A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g. as in the evening star illustration) before trading a doji star.

 

Shooting Star – This pattern suggests a minor reversal when it appears after a rally. The stars body must appear near the low price and the candlestick should have a long upper shadow.


Reversal Patterns

Long legged doji

Dragonfly doji

Gravestone doji

Star

Doji star

 

Long-legged Doji – This is often signifies a turning point. It occurs when the open and close are the same, and the range between the high and low is relatively large.

 

Dragonfly Doji – This candlestick signifies a substantial intra-day reversal – a shift in sentiment from bearish to bullish – when found in a downtrend. It occurs when the open and close are both the same (at or very near the high of the day), while the low is significantly lower than the open, high and closing prices.

 

Gravestone Doji – The opposite of a dragonfly doji, this candlestick signifies a substantial intra-day sentiment shift from bullish to bearish when found in an uptrend – indicating the death of a bullish attack. It occurs when the open and close re both the same (at or very near the low of the day), while the high is significantly higher than the open, low and closing prices.

 

Star – Stars indicate reversals. A star is a candlestick with a small realy body that occurs after a candlestick with a much larger real body, where the real bodies do not overlap. The shadows may overlap.

 

Doji Star – A star indicates a reversal and a doji indicates indecision. Thus, this pattern usually indicates a reversal following an indecisive period. You should wait for a confirmation (e.g. as in the evening star image) before trading a doji star.


Neutral Patterns

Spinning tops

Doji

Spinning Tops – These are neutral lines. They occur when the distance between the high and low, and the distance between the open and close are relatively small.

 

Doji – This line implies indecision. The market opened and closed at the same price. These candlesticks can appear in several different patterns. Double doji candlesticks (two adjacent doji lines) imply that a forceful move will follow a breakout from the current indecision.

Harami (‘pregnant’ is English) – This pattern indicates a decrease in momentum. It occurs when a candlestick with a small body falls within the area of a larger body. In this example, a bullish (empty) candlestick with a long body is followed by a weak bearish (filled in) candlestick. This implies a decrease in the bullish momentum.

Harami Cross – This pattern also indicates a decrease in momentum. The pattern is similar to a harami, except the second line is a doji (signifying indecision).