These patterns tend to repeat themselves constantly, but the market will just as often try to fake out traders in the same vein when the context is overlooked. Therefore it pays to understand the ‘story’ that each candle represents in order to attain a firm grasp on the mechanics of candlestick chart patterns. For example, a hammer candle represents a near-term capitulation bottom if it forms after three preceding bearish candles, whereas hammer candle that forms on ‘flat’ sideways candles is basically useless. Many newbies make the common mistake of spotting a single candle formation without taking the context into consideration. It is important to keep in mind that most candle patterns need a confirmation based on the context of the preceding candles and proceeding candle. If the open is higher than the close, then the body is colored red as it represents a net price decline.Įvery candlestick tells a story of the showdown between the bulls and the bears, buyers and sellers, supply and demand, fear and greed. If the close is higher than the open, then the body is colored green representing a net price gain. The low of the candle is the lower shadow or tail, represented by a vertical line extending down from the body. The high is represents by a vertical line extending from the top of the body to the highest price called a shadow, tail or wick. Investing Day Trading Basics Market Indices Paper Trading Stock Watch Lists Short Squeezes Stock Breakouts Stock Volume Stock Market Futures Trading Styles & Strategies After Hours Trading High Frequency Trading Momentum Trading Short Selling Options Trading Penny Stocks Pre-Market Trading Trading Styles Stock Brokers Broker Types Commission Structures Market Routes Order Types Short Lists Trading Platforms About Features Stock Scanners Charts Introduction to Stock Charts Introduction to Technical Analysis Price and Volume Types of Charts How to Read a Stock Chart Candlestick Charts Stock Chart Patterns Support and Resistance Trend Lines Triangle Patterns Wedges Flags Double Bottoms & Tops Head and Shoulders Cup and Handle Level 2 Introduction to Level 2 Supply and Demand Bid, Ask, and Spread Market Makers Technical Indicators Moving Averages RSI MACD VWAP Bollinger Bands Fibonacci Retracements Money Flow Index Parabolic SAR Stochastics Pivot Points Stock Market Fundamentals Introduction to Fundamental Analysis Accounting Ratios Cash Flow Statements Income Statements Balance Sheets Stock Share Structure SEC Filings Form 4 Form 144 Form 8-K Form 10-Q Form 10-K Registration Statements What is Day Trading Day Trading Defined Day Trading Goals Risk Management Stock Market History Stock Market Terms Trading vs.
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