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Candlestick Charting


Candlestick Charting basics - picture of candlestick bars in an uptrend coming out of a computer screen heading into the blue cloudy sky

Candlestick Basics

Makes it easy to distinguish between up days and down days

Candlestick charting has gained popularity since the 1990s and is a common alternative method of displaying a stock's price on a chart. Candlesticks charts are very similar to the standard Bar chart which shows the days trading range with its opening and closing prices. The main difference is that candlesticks show the open to close price range in a more visually predominate manner. They are referred to as Candlesticks since they resemble a candle with its wick.

The origin of Candlestick charting goes back several centuries and was developed in Japan. Like other chart styles, candlesticks up until the 1990s were plotted by hand on graph paper which made it a tedious task. When personal computers became popular, it allowed charting programs to automatically plot the candlesticks which removed the tedious manual task and thus allowed its popularity to increase significantly.

While reading a candlestick chart takes a bit of getting used too, once the stock investor or trader grasps the basic concept, candlesticks provide a highly visual method of analyzing a stock's price information which is particularly useful for pinpointing short-term trend reversals and continuations.

Candlestick charting is extremely effective for short-term trading and is commonly used by stock traders such as day traders and swing traders. Stock investors utilizing short-term active investing strategies can also make good use of this style of charting in order to supplement their fundamentals and to time their entries and exits.

The open and close are the most emotionally charged times of the day as the market participants scramble to establish and liquidate their positions. These are the times where the intraday volume and volatility is usually the highest. Candlestick charting is particularly good at visually highlighting the open and close price range.

The construction of a bullish and a bearish candlestick is illustrated in Figure 1. The bar chart equivalent is provided for comparison.

Figure 1. Candlestick construction

Candlestick Charting basics - diagram showing Candle body tail construction for up day and down day

Referring to Figure 1. the open to close range is referred to as the body which is the Candle component. If the close is above the open, the body is shown hollowed and if the close is below the open, the body is shaded. If the close is equal to the open, then there is no body and the Candlestick looks exactly the same as a Bar chart. The thin vertical line extending above and below the body are referred to as the shadow or alternatively as the tail. These are the Wick components of the candlestick.

A unique situation occurs with candlesticks when the open is at the low and the close is at the high, as the body takes up the whole range with no lower or upper tail. This also occurs when the open is at the high and the close is at the low.

Traditional candlestick charting shows the outline of the body in black and shows the shading in black. Some of the modern charting software packages allow the colors to be customized with one of the popular color themes showing a shaded candle in green for an up day and a shaded candle in red for a down day. While some users of candlestick charting prefer these color schemes, they can also be a little distractive and there are stock traders who still prefer to use the customary black and white to display their candles.

Modern charting may allow the candles to be colored, but

many traders still prefer black and white for its clarity

The hollow body candle is traditionally referred to as a white candle and a shaded body candle is traditionally referred to as a black candle. Candlestick charting places a lot of emphasis on the whether the body is filled or not, since this determines the bearishness or bullishness of the stock in question. The bearishness or bullishness can be easily and readily determined visually by glancing over the stock's candlestick chart. A stock chart displaying a large proportion of white candles is bullish. Conversely, a stock chart displaying a large proportion of black candles is bearish.

White candles are bullish since the close is above the open and candles that have a short or have no upper tail are even more bullish. Similarly, black candles are bearish since the close is below the open and candles that have a short or have no lower tail are even more bearish. Some examples of bullish and bearish candles are illustrated in Figure 2.

Figure 2. Increasing bullishness and bearishness of candles

Candlestick Charting basics - diagram showing bullishness and bearishness of candles

A typical candlestick chart displays a variety of lengths for the candle bodies. These relative body lengths can be broadly grouped as short, common and long. A candle is considered short if the length of the body is noticeably less than the typical body lengths of other candles. Also the upper and lower tails are relatively short. A candle is considered long if the length of the body is noticeably more than the typical body lengths of other candles. The upper and lower tails may be relatively long with a long body candle.

These candle body lengths are illustrated in Figure 3. for bullish candles and in Figure 4. for bearish candles.

Figure 3. Bullish candle body lengths

Candlestick Charting basics - diagram showing various Bullish candle body lengths, short, common and long tail

Figure 4. Bearish candle body lengths

Candlestick Charting basics - diagram showing various Bearish candle body lengths, short, common and long tail

Any candle with a body length of at least a common candle that has a significant increase in volume compared to the recent trading volume is known as a Dominate Candle (which can be either a white candle or a black candle).

Candles that do not have an upper or lower tail are also referred to as a Shaven candle (which can be either a short, common or long body candle). Candles that have a relatively long upper and lower tail compared to the body length are generally referred to as Spinning Tops. Candles that have a negligible body length are generally referred to as a Doji.

Candlestick chart

An example of a candlestick chart is shown below in Chart 1. which shows examples of the Common candle along with some Short and Long candles for comparison.

Chart 1. Candle Chart with various Candle Lengths

Candlestick Charting basics - stock chart showing various Bullish and bearish black and white candle patterns in uptrend and down trend for symbol TJX

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Candle Chart with various candle Lengths

Candlestick Charting basics - stock chart showing various Bullish and bearish colored candle patterns in uptrend and down trend for the same stock code as above TJX

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

Summary

Candlestick charting is more commonly used with daily charts, which is a popular choice by stock traders. Other time frames can also be used such as intraday periods with 5 minute candles. Also weekly or even monthly time frames can be plotted with candlesticks. The weekly candlestick has merits for long-term investors who are looking for a more opportunistic entry price for their proposed stock purchases. Some day traders prefer to use candlestick charts for their intraday charts as it provides a visual cue as to when a reversal in trend is likely.

The use of candlestick charting is a personal choice amongst stock investors and traders. The primary benefit of candlestick charting is that it's highly visual in displaying trend reversals which the skillful chart reader can use to their advantage. However, like all stock analysis techniques it is best if candlestick charting is combined with other stock analysis techniques rather than used in isolation.

Candlestick Charting - Single Candle Reversal Patterns; picture of candlestick bars colored red and light blue on a dark blue background board with some writing behind it

Single Candle Reversal Patterns

Reversal candle patterns indicate that a short-term trend may be reversing direction and provide the stock investor or trader an alternative method of detecting trend reversals. While candle patterns are still chart patterns, they typically only require one bar (for the single candle patterns) as opposed to chart patterns which typically require around 10 or more bars. Thus candle patterns are particularly useful for locating trend reversals that are close to the top or bottom of a trend reversal.

The trend reversal can be either the reversal of the main trend direction or the reversal of a correction in the main trend so that the trend resumes in its main direction.

The names used to describe candle patterns often seem somewhat obscure, but this is due to the fact that candlestick charting originated in Japan and the terms are translated into English, thus some of the candlestick terminology may seem illogical by English standards. The name of a candle pattern is not important, what is important is the ability to determine the likelihood of a short-term trend direction change.

Bottom Reversal Candles

There are several bottom reversal single candle patterns that occur frequently which can provide the stock trader with an entry that is within one bar of the bottom of a trend reversal. Active stock investors can also benefit from these candle patterns as they can provide a cue as to the likelihood that a short-term correction has ended and thus provide the stock investor with a more opportunistic entry price.

The common bottom reversal single candle patterns are illustrated in the following figures. For simplicity, each single candle pattern is shown with a couple of bars preceding the reversal candle and a couple of bars following the reversal candle. These bars simply denote that they may be of any candle type and the only candle of importance is the reversal candle.

Hammer

chart pattern chart pattern candle bottom reversal hammer

This reversal candle pattern has a lower tail that is at least twice the length of the body and usually has no upper tail or the upper tail is relatively short. The body can be either white or black, although a white body generally provides a stronger reversal signal than a black body does (since the close is above the open with a white Hammer candle). A variation to the Hammer candle is a candle that has a lower tail that is less than twice the length of the body, but the lower tail is at least as long as the body.

The name for this candle pattern is an easy one to remember as it simply resembles a hammer. The analogy with a bar chart is that the stock opened, traded down and then back up to close around its opening price.

The significance of the Hammer candle is that the market could not sustain the low prices of the day and indicates that the selling may be finished for now. If the Hammer candle body is below the preceding bar (gap down), this increases the significance of this candle pattern. The following day's trading above the high of the Hammer candle is a strong indication that the downtrend may have reversed.

Spinning Top

chart pattern candle reversal bottom spinning top

This reversal candle pattern has both a lower tail and an upper tail that are roughly the same length. The lengths of the lower and upper tails are generally at least the length of the body. The body can be either white or black, although a white body generally provides a stronger reversal signal than a black body does (since the close is above the open with a white spinning top candle).

The name for this candle pattern is another easy one to remember since it simply resembles a spinning top. The analogy with a bar chart is that for a white Spinning Top, the stock opened, traded down and then back up to its high and then traded back down to close above its opening price. Conversely for a black Spinning Top, the stock opened, traded up and then back down to its low and then traded back up to close below its opening price.

The significance of the Spinning Top candle is that the market could not decisively follow through in either direction indicating that the downtrend may have at least paused. If the Spinning Top candle body is below the preceding bar (gap down), this increases the significance of this candle pattern. The following day's trading above the high of the Spinning Top candle is an indication that the downtrend may have reversed.

Dragonfly Doji

chart pattern candle reversal bottom dragonfly

This reversal candle pattern has no body (meaning that the close is at the same price as the open). The lower tail of the Dragonfly Doji is relatively long and usually has no upper tail or the upper tail is relatively short. The Dragonfly Doji is essentially a hammer candle with a body that has negligible length.

The name for this candle pattern is not an easy one to remember, but it can be thought of as a hammer with a really small head. The analogy with a bar chart is that the stock opened, traded down and then back up to close at its opening price.

The significance of the Dragonfly Doji candle is the same as the Hammer candle; the market could not sustain the low prices of the day and indicates that the selling may be finished for now. If the Dragonfly Doji candle is below the preceding bar (gap down), this increases the significance of this candle pattern. The following day's trading above the high of the Dragonfly Doji candle is a strong indication that the downtrend may have reversed.

Rickshaw Man Doji

chart pattern candle reversal bottom rickshaw

This reversal candle pattern also has no body length or only a small body, with both the lower tail and the upper tail being roughly the same length. The total length of the Rickshaw Man Doji is relatively long.

The name for this candle pattern is another one that is not easy to remember, but it can be thought of as a large cross. The analogy with a bar chart is that the stock opened, traded up and down throughout the day and finally closed at its opening price.

The significance of the Rickshaw Man Doji candle is similar to the Spinning Top; that the market could not decisively follow through in either direction indicating that the downtrend may have at least paused. If the Rickshaw Man Doji candle is below the preceding bar (gap down), this increases the significance of this candle pattern. The following day's trading above the high of the Rickshaw Man Doji candle is a strong indication that the downtrend may have reversed.

Common Doji

chart pattern candle reversal bottom doji

This reversal candle pattern also has no body length or only a small body which can be white or black. The Common Doji has relatively short lower and upper tails that are roughly the same length. The Common Doji is a relatively small candle.

The name for this candle pattern is another one that is obscure, but the reference to 'common' is in the fact that this small candle occurs frequently (it is quite common). The analogy with a bar chart is that the stock opened and spent all day trading around its opening price where it finally closed at.

The significance of the Common Doji candle is similar to the Rickshaw Man Doji; that the market could not decisively follow through in either direction indicating that the downtrend may have at least paused. If the Common Doji candle is below the preceding bar (gap down), this increases the significance of this candle pattern. The following day's trading above the high of the Common Doji candle is a strong indication that the downtrend may have reversed.

Top Reversal Candles

Similarly to the bottom reversal candle patterns, there are equivalent top reversal single candle patterns that occur frequently. For the most part, the top reversal patterns are merely bottom reversal patterns inverted, but some of the top reversal patterns have different names.

The following figures illustrate the equivalent top reversal single candle patterns.

Shooting Star

chart pattern candle reversal top shootingstar

This is the top reversal equivalent to the Hammer. A black body is a stronger reversal signal than a white body and a gap down from the preceding bar increases the significance of this candle pattern.

The name for this candle pattern is a little odd, but a star is something that is high up. The analogy with a bar chart is that the stock opened, traded up and then back down to close around its opening price.

The significance of the Shooting Star candle is that the market could not sustain the high prices of the day and indicates that the buying may have ceased for now. The following day's trading below the low of the Shooting Star candle is a strong indication that the uptrend may have reversed.

Spinning Top

chart pattern candle reversal top spinningtop

This top reversal candle pattern is the same as the bottom reversal Spinning Top. A black body is a stronger reversal signal than a white body and a gap up from the preceding bar increases the significance of this candle pattern.

The analogy with a bar chart is that for a white Spinning Top, the stock opened, traded down and then back up to its high and then traded back down to close above its opening price. Conversely for a black Spinning Top, the stock opened, traded up and then back down to its low and then traded back up to close below its opening price.

The significance of the Spinning Top candle is that the market could not decisively follow through in either direction indicating that the uptrend may have at least paused. The following day's trading below the low of the Spinning Top candle is an indication that the uptrend may have reversed.

Gravestone Doji

chart pattern candle reversal top gravestone

This is the top reversal equivalent to the Dragonfly Doji which is essentially a hammer with a body that has negligible length.

The name for this candle pattern is another obscure one, but it does have some resemblance to a shovel. The analogy with a bar chart is that the stock opened, traded up and then back down to close at its opening price.

The significance of the Gravestone Doji candle is the same as the Shooting Star candle; the market could not sustain the high prices of the day and indicates that the buying may have ceased for now. If the Gravestone Doji candle gapped above the preceding bar, this increases the significance of this candle pattern. The following day's trading below the low of the Gravestone Doji candle is a strong indication that the uptrend may have reversed.

Rickshaw Man Doji

chart pattern candle reversal top rickshaw

This top reversal candle pattern is the same as the bottom reversal Rickshaw Man Doji and a gap up from the preceding bar increases the significance of this candle pattern.

The analogy with a bar chart is that the stock opened, traded up and down throughout the day and finally closed at its opening price.

The significance of the Rickshaw Man Doji candle is similar to the Spinning Top; that the market could not decisively follow through in either direction indicating that the uptrend may have at least paused. The following day's trading below the low of the Rickshaw Man Doji candle is a strong indication that the uptrend may have reversed.

Common Doji

chart pattern candle reversal top doji

This top reversal candle pattern is the same as the bottom reversal Common Doji and a gap up from the preceding bar increases the significance of this candle pattern.

The analogy with a bar chart is that the stock opened and spent all day trading around its opening price where it finally closed at.

The significance of the Common Doji candle is similar to the Rickshaw Man Doji; that the market could not decisively follow through in either direction indicating that the uptrend may have at least paused. The following day's trading below the low of the Common Doji candle is a strong indication that the uptrend may have reversed.

Candlestick chart

The candlestick chart shown below in Chart 1. shows several examples of single candle reversals.

Chart 1. Single Candle Reversals

<>     Candlestick Charting - Single Candle Reversals - stock chart showing black and white candle patterns in uptrend and down trend for symbol CSGP

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Single Candle Reversals

Candlestick Charting - Single Candle Reversals - stock chart showing colored bar candle patterns in uptrend and down trend for  the above chart with symbol CSGP

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

Candlestick Charting - Two Candle Reversal Patterns; picture of candle bars in an uptrend pattern colored blue and red bars with blue cloudy sky background and green grass

Two Candle Reversal Patterns

Some reversal candle patterns are comprised of two candles and these occur frequently at the tops and bottoms of short-term trends. Similarly to the single candle reversal patterns, these two candle patterns provide the stock investor or trader an alternative method of detecting trend reversals. Just like single candle reversal patterns, two candle patterns are particularly useful for locating trend reversals that are close to the top or bottom of a trend reversal.

The trend reversal can be either the reversal of the main trend direction or the reversal of a correction in the main trend so that the trend resumes in its main direction.

The names used to describe candle patterns often seem somewhat obscure, but this is due to the fact that candlestick charting originated in Japan and is translated into English, thus some of the candlestick terminology may seem illogical by English standards. The name of a candle pattern is not important, what is important is the ability to determine the likelihood of a short-term trend direction change.

Bottom Reversal Candles

There are several bottom reversal two candle patterns that occur frequently which can provide the stock trader with an entry that is within one bar of the bottom of a trend reversal. Active stock investors can also benefit from these candle patterns as they can provide a cue as to the likelihood that a short-term correction has ended and thus provide the stock investor with a more opportunistic entry price.

The common bottom reversal two candle patterns are illustrated in the following figures. For simplicity, each two candle pattern is shown with a bar preceding the reversal pattern and a couple of bars following the reversal pattern. These bars simply denote that they may be of any candle type and the only candles of importance are the two reversal candles.

Piercing

chart pattern candle reversal bottom piercing

This reversal two candle pattern consists of a black candle followed by a white candle. The open of the white candle is below the body of the black candle and the white candle penetrates the black candle by at least 50%. Both the black candle and the white candle are of typical length, which means neither candle can be a short candle. The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The white candle can have a lower tail, but should have no upper tail or at most a short upper tail.

The name for this candle pattern is an easy one to remember as the white candle pierces into the black candle. The analogy with a bar chart is that the stock closed at its low on the black candle day and then the next day gapped down and traded up all day to close up towards the black candle's opening price, thus reversing most of the decline.

The significance of the Piercing candle pattern is that the market could not sustain the low prices of the gap down open of the white candle day which indicates that the selling may be finished for now. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the downtrend may have reversed.

Spring

chart pattern candle reversal bottom spring

This reversal two candle pattern consists of a black candle followed by a white candle with a lower tail that is typically at least as long as the body. The open of the white candle is generally at or above the low of the black candle.

The black candle is often black, but can be any candle of common length or shorter which includes the length of the tails. What is important with this pattern is that the lower tail of the white candle is well below the preceding candles low and that the close is near or above the high of the preceding candle.

The name for this candle pattern is an easy one to remember as the white candle's tail can be thought of as a plunger. The analogy with a bar chart is that the stock closed at its low on the black candle day and then the next day traded well down before reversing and trading up to close towards the black candle's high, thus reversing the decline.

The significance of the Spring candle pattern is that the market could not sustain the low prices of the initial sell down on the white candle day which indicates that the selling may be finished for now. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the downtrend may have reversed.

Bullish Engulfing

chart pattern candle reversal bottom engulfing

This reversal two candle pattern consists of a short black candle followed by a longer white candle. The body of the white candle totally encloses the body of the black candle and the white candle should be at least twice the length of the black candle. Ideally, the body of the black candle is somewhere centrally placed within the body of the white candle. The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The short black candle can also be a short white candle, but the larger white candle must be a white candle.

The name for this candle pattern is an easy one to remember as the white candle totally engulfs the small black candle. The analogy with a bar chart is that the stock traded in a narrow range on the black candle day and then the next day gapped down and traded up all day to close up above the black candle's opening price, thus the stock is regaining strength. Using bar chart terminology, the Bullish Engulfing candle pattern is essentially an Outside day pattern.

The significance of the Bullish Engulfing candle pattern is that the market is driving prices higher on the white candle day which provides confidence that the selling may be finished for now. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the downtrend may have reversed.

Harami

chart pattern candle reversal bottom harami

This reversal two candle pattern consists of a black candle followed by a short white candle. The body of the white candle is totally inside the body of the black candle and the white candle should be at least half the length of the black candle. Ideally, the body of the white candle is somewhere centrally placed within the body of the black candle. The black candle can have an upper tail and/or lower tail. The white candle can have short tails, but they must be well within the body of the black candle. The white candle can be black if it is very short, generally with a length of no more than a third of the length of the black candle. The black candle must be black for this pattern and must have a reasonably long body length.

The name for this candle pattern is one of those obscure names and is not easy to remember. The analogy with a bar chart is that the stock traded down all day on the black candle day and then the next day gapped up and traded up in a narrow range to close above its open, giving the stock a pause from the selling. Using bar chart terminology, the Harami candle pattern is essentially an Inside day pattern.

The significance of the Harami candle pattern is that the market is pausing on the white candle day after the heavy selling on the black candle day, which provides investors with some relief that the selling may be finished. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the downtrend may have reversed.

Harami Cross

chart pattern candle reversal bottom harami cross

This reversal two candle pattern is a variation to the Harami pattern with a relatively long black candle; however the second candle is a Doji cross. The Doji cross is a candle that opens and closes at the same price and the high to low range is relatively small. The black candle should be twice as long as the Doji cross high to low and must totally enclose the Doji cross. Ideally, the Doji cross is somewhere centrally placed within the body of the black candle. The black candle can have an upper tail and/or lower tail.

The name for this candle pattern is a little easier than the above Harami since the second candle (the Doji cross) actually looks like a cross. The analogy with a bar chart is that the stock traded down all day on the black candle day and then the next day gapped up and traded in a narrow range, giving the stock a pause from the selling. Using bar chart terminology, the Harami Cross candle pattern is essentially an Inside day pattern.

The significance of the Harami Cross candle pattern is that the market is pausing on the Doji cross day after the heavy selling on the black candle day, which provides investors with some relief that the selling may be finished. Should the stock trade above the high of the Doji cross candle on the following day, then this is a strong indication that the downtrend may have reversed.

Top Reversal Candles

Similarly to the bottom reversal candle patterns, there are equivalent top reversal two candle patterns that occur frequently. For the most part, the top reversal patterns are merely bottom reversal patterns inverted, but some of the top reversal patterns have different names.

The following figures illustrate the equivalent top reversal two candle patterns.

Dark Cloud Cover

chart pattern candle reversal top dark cloud

This is the top reversal equivalent to the Piercing candle pattern and consists of a white candle followed by a black candle. The open of the black candle is above the body of the white candle and the black candle penetrates the white candle by at least 50%. Both the white candle and the black candle are of typical length, which means neither candle can be a short candle. The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The black candle can have an upper tail, but should have no lower tail or at most a short lower tail.

The name for this candle pattern is a little odd, but can be thought of as the black candle that is clouding the white candle. The analogy with a bar chart is that the stock closed at its high on the white candle day and then the next day gapped up and traded down all day to close down towards the white candle's opening price, thus reversing most of the gain.

The significance of the Dark Cloud Cover candle pattern is that the market could not sustain the high prices of the gap up open of the black candle day which indicates that the buying may be over for now. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the uptrend may have reversed.

Upthrust

chart pattern candle reversal top upthrust

This reversal two candle pattern consists of a white candle followed by a black candle with an upper tail that is typically at least as long as the body. The open of the black candle is generally at or below the high of the white candle.

The white candle is often white, but can be any candle of common length or shorter which includes the length of the tails. What is important with this pattern is that the upper tail of the black candle is well above the preceding candles high and that the close is near or below the low of the preceding candle.

The name for this candle pattern can be thought of as a plunger that thrusts upward. The analogy with a bar chart is that the stock closed at its high on the white candle day and then the next day traded well up before reversing and trading down to close towards the white candle's low, thus reversing the gain.

The significance of the Upthrust candle pattern is that the market could not sustain the high prices of the initial rally on the black candle day which indicates that the buying may be over for now. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the uptrend may have reversed.

Bearish Engulfing

chart pattern candle reversal top engulfing

This is the top reversal equivalent to the Bullish Engulfing candle pattern and consists of a short white candle followed by a longer black candle. The body of the black candle totally encloses the body of the white candle and the black candle should be at least twice the length of the white candle. Ideally, the body of the white candle is somewhere centrally placed within the body of the black candle. The white candle can have an lower tail, but should have no upper tail or at most a short upper tail. The black candle can have a upper tail, but should have no lower tail or at most a short lower tail. The short white candle can also be a short black candle, but the larger black candle must be a black candle.

The name for this candle pattern is an easy one to remember as the black candle totally engulfs the small white candle. The analogy with a bar chart is that the stock traded in a narrow range on the white candle day and then the next day gapped up and traded down all day to close down below the white candle's opening price, thus the stock is becoming bearish. Using bar chart terminology, the Bearish Engulfing candle pattern is essentially an Outside day pattern.

The significance of the Bearish Engulfing candle pattern is that the market is driving prices lower on the black candle day which increases the pessimism that the buying may be over for now. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the uptrend may have reversed.

Harami

chart pattern candle reversal top harami

This reversal two candle pattern has the same name as the equivalent bottom reversal pattern and consists of a white candle followed by a short black candle. The body of the black candle is totally inside the body of the white candle and the black candle should be at least half the length of the white candle. Ideally, the body of the black candle is somewhere centrally placed within the body of the white candle. The white candle can have a lower tail and/or upper tail. The black candle can have short tails, but they must be well within the body of the white candle. The black candle can be white if it is very short, generally with a length of no more than a third of the length of the white candle. The white candle must be white for this pattern and must have a reasonably long body length.

The name for this candle pattern is one of those obscure names and is not easy to remember. The analogy with a bar chart is that the stock traded up all day on the white candle day and then the next day gapped down and traded down in a narrow range to close below its open, giving the stock a pause from the buying pressure. Using bar chart terminology, the Harami candle pattern is essentially an Inside day pattern.

The significance of the Harami candle pattern is that the market is pausing on the black candle day after the heavy buying on the white candle day, which increases the pessimism of investors that the buying may be over for now. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the uptrend may have reversed.

Harami Cross

chart pattern candle reversal top harami cross

This reversal two candle pattern is a variation to the Harami pattern with a relatively long white candle; however the second candle is a Doji cross. The white candle should be twice as long as the Doji cross high to low and must totally enclose the Doji cross. Ideally, the Doji cross is somewhere centrally placed within the body of the white candle. The white candle can have a lower tail and/or upper tail.

The name for this candle pattern is a little easier than the above Harami since the second candle (the Doji cross) actually looks like a cross. The analogy with a bar chart is that the stock traded up all day on the white candle day and then the next day gapped down and traded in a narrow range, giving the stock a pause from the buying pressure. Using bar chart terminology, the Harami Cross candle pattern is essentially an Inside day pattern.

The significance of the Harami Cross candle pattern is that the market is pausing on the Doji cross day after the heavy buying on the white candle day, which increases the tension of investors that the buying may be over for now. Should the stock trade below the low of the Doji cross candle on the following day, then this is a strong indication that the uptrend may have reversed.

Candlestick chart

The candlestick chart shown below in Chart 1. shows several examples of two candle reversal patterns.

Chart 1. Two Candle Reversal Patterns

Candlestick Charting - two Candle Reversals - stock chart showing black and white candle patterns in uptrend and down trend for symbol PLUS

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Two Candle Reversal Patterns

Candlestick Charting - Two Candle Reversals - stock chart showing colored bar candle patterns in uptrend and down trend for the above chart with symbol PLUS

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

Candlestick Charting - Three Candle Reversal Patterns; picture of a candle pattern rallying upwards to a profit target on a white background glass panel

Three Candle Reversal Patterns

Three candle reversal patterns are not as common as the single candle reversal pattern or the two candle reversal pattern, but they are still useful patterns for the stock investor or trader. The three candle pattern simply includes an extra confirmation candle and as such the entry is delayed by an extra day.

Similarly to the single and two candle reversal patterns, the three candle patterns locate a trend reversal in either the main trend or the reversal of a correction so that the main trend continues. Generally the three candle reversal patterns tend to be more effective with larger corrections rather than minor corrections as these patterns require a delayed enter and the larger corrections provide greater price movement before the next correction.

The names used to describe candle patterns are based on a Japanese translation into English.

Bottom Reversal Candles

There are several bottom reversal three candle patterns that occur which can provide the stock trader with an entry that is within two bars of the bottom of a trend reversal. Active stock investors can also benefit from these candle patterns as they can provide a cue as to the likelihood that a short-term correction has ended and thus provide the stock investor with a more opportunistic entry price.

The common bottom reversal three candle patterns are illustrated in the following figures. For simplicity, each three candle pattern is shown with a bar preceding the reversal pattern and a bar following the reversal pattern. These bars simply denote that they may be of any candle type and the only candles of importance are the three reversal candles.

Morning Star

chart pattern candle reversal bottom morning star

This reversal three candle pattern consists of a black candle followed by a short white candle which is followed by a longer white candle. Ideally the short white candle is below the other two candles with a gap between the bodies although it is more common if the small white candle overlaps the other two candles. The second white candle should be longer than the first short white candle, but quite often it is only slightly longer. The short white candle can also be black, but if it is black it must have a short body relative to the other two candles.

The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The short white candle can also be black and can have an upper and/or lower tail

The name for this candle pattern is a little odd, but can be thought of as a star that sits low in the night sky. The analogy with a bar chart is that the stock closed at its low on the black candle day and then the next day gapped down and traded in a narrow range and then on the third day it gapped up and traded up all day to close up towards the black candle's opening price, thus reversing most of the decline.

The significance of the Morning Star candle pattern is that the market has already started to reverse the downtrend. Should the stock trade above the high of the second white candle on the following day, then this is a strong indication that the new uptrend may continue.

Morning Doji Star

chart pattern candle reversal bottom morning doji

This reversal three candle pattern is basically the same as the Morning Star pattern except that the small white candle is replaced with a Doji cross. Everything else is the same with the Doji cross being ideally below the other two candles with a gap between the bodies. The low of the Doji cross should be below the bodies of the other two candles as this increases the significance of the pattern.

As with the Morning Star pattern, the black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The white candle can have a lower tail, but should have no upper tail or at most a short upper tail.

The name for this candle pattern is simply the Morning Star with a Doji added to it which makes it look more like a star that sits low in the night sky. The analogy with a bar chart is that the stock closed at its low on the black candle day and then the next day gapped down and traded in a narrow range and then on the third day it gapped up and traded up all day to close up towards the black candle's opening price, thus reversing most of the decline.

The significance of the Morning Doji Star candle pattern is that the market has already started to reverse the downtrend. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the new uptrend may continue.

Two Doves

chart pattern candle reversal bottom two doves

This reversal three candle pattern is again basically the same as the Morning Star pattern except that with this pattern the larger white candle overlaps the short white candle. Everything else is essentially the same with the Morning Star pattern. Ideally the short white candle is below the black candle's body, although it is more common if the small white candle overlaps the black candle. The small white candle must be white. The second white candle should be longer than the first short white candle, but quite often it is only slightly longer.

The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. Both white candles can have a lower tail, but should have no upper tail or at most a short upper tail.

The name for this candle pattern is fairly simple as it can be thought of as two white doves. The analogy with a bar chart is that the stock closed at its low on the black candle day and then the next day gapped down and traded up slightly and then on the third day it gapped back down only to trade up all day to close up towards the black candle's opening price, thus reversing most of the decline.

The significance of the Two Doves candle pattern is that the market has already started to reverse the downtrend. Should the stock trade above the high of the second white candle on the following day, then this is a strong indication that the new uptrend may continue.

Top Reversal Candles

Similarly to the bottom reversal candle patterns, there are equivalent top reversal three candle patterns that occur. For the most part, the top reversal patterns are merely bottom reversal patterns inverted, but the top reversal patterns have different names.

The following figures illustrate the equivalent top reversal three candle patterns.

Evening Star

chart pattern candle reversal top evening star

This is the top reversal equivalent to the Morning Star candle pattern and consists of a white candle followed by a short black candle which is followed by a longer black candle. Ideally the short black candle is below the other two candles with a gap between the bodies although it is more common if the small black candle overlaps the other two candles. The second black candle should be longer than the first short black candle, but quite often it is only slightly longer. The short black candle can also be white, but if it is white it must have a short body relative to the other two candles.

The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The short black candle can also be white and can have a lower and/or upper tail

The name for this candle pattern is a little odd, but can be thought of as a star that sits high in the night sky. The analogy with a bar chart is that the stock closed at its high on the white candle day and then the next day gapped up and traded in a narrow range and then on the third day it gapped down and traded down all day to close down towards the white candle's opening price, thus reversing most of the gain.

The significance of the Evening Star candle pattern is that the market has already started to reverse the uptrend. Should the stock trade below the low of the second black candle on the following day, then this is a strong indication that the new downtrend may continue.

Evening Doji Star

chart pattern candle reversal top evening doji

This reversal three candle pattern is basically the same as the Evening Star pattern except that the small black candle is replaced with a Doji cross. Everything else is the same with the Doji cross being ideally above the other two candles with a gap between the bodies. The high of the Doji cross should be above the bodies of the other two candles as this increases the significance of the pattern.

As with the Evening Star pattern, the white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The black candle can have a upper tail, but should have no lower tail or at most a short lower tail.

The name for this candle pattern is simply the Evening Star with a Doji added to it which makes it look more like a star that sits high in the night sky. The analogy with a bar chart is that the stock closed at its high on the white candle day and then the next day gapped up and traded in a narrow range and then on the third day it gapped down and traded down all day to close down towards the white candle's opening price, thus reversing most of the gain.

The significance of the Evening Doji Star candle pattern is that the market has already started to reverse the uptrend. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the new downtrend may continue.

Two Crows

chart pattern candle reversal bottom two crows

This reversal three candle pattern is again basically the same as the Evening Star pattern except that with this pattern the larger black candle overlaps the short black candle. Everything else is essentially the same with the Evening Star pattern. Ideally the short black candle is above the white candle's body, although it is more common if the small black candle overlaps the white candle. The small black candle must be black. The second black candle should be longer than the first short black candle, but quite often it is only slightly longer.

The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. Both black candles can have an upper tail, but should have no lower tail or at most a short lower tail.

The name for this candle pattern is fairly simple as it can be thought of as two black crows. The analogy with a bar chart is that the stock closed at its high on the white candle day and then the next day gapped up and traded down slightly and then on the third day it gapped back up only to trade down all day to close down towards the white candle's opening price, thus reversing most of the gain.

The significance of the Two Crows candle pattern is that the market has already started to reverse the uptrend. Should the stock trade below the low of the second black candle on the following day, then this is a strong indication that the new downtrend may continue.

Candlestick chart

The candlestick chart shown below in Chart 1. shows several examples of three candle reversal patterns.

Chart 1. Three Candle Reversal Patterns

Candlestick Charting - Three Candle Reversals - stock chart showing black and white candle patterns in uptrend and down trend for symbol BIDU

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Three Candle Reversal Patterns

Candlestick Charting - Three Candle Reversals - stock chart showing colored bar candle patterns in uptrend and down trend for the above chart with symbol BIDU

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

Candlestick Charting - Continuation Candle Patterns; picture of candles in an uptrend with gold bars and red line with arrow pointing up on a grey background board

Continuation Candle Patterns

Continuation candle patterns provide the stock trader with a short-term trading opportunity and also provide the stock investor with an opportunity to add to an existing profitable position.

These continuation patterns occur when a trending stock pauses briefly before continuing with the primary trend direction (which can be either up or down). Profiting from a downward move requires the stock trader to short sell the stock. A stock investor might use these downward pauses to reduce their position size with the intention of repurchasing the stock at lower prices.

Bullish Continuation Patterns

There are several bullish continuation patterns that occur frequently. These patterns are more effective with stocks that are trending rather than trading in congestion or randomly fluctuating. The stronger the trend is, then the more reliable the continuation patterns tend to be.

The commonly occurring continuation candle patterns are illustrated in the following figures. For simplicity, each continuation candle pattern is shown with a couple of bars preceding the continuation pattern and a couple of bars following the continuation pattern. These bars simply denote that they may be of any candle type and the only candles of importance are the continuation pattern candles.

Upside Tasuki Gap

chart pattern candle continuation bullish tasuki gap

This continuation candle pattern consists of a three candles. The first candle is a white candle with a strong close followed by a second white candle which gapped up and the third candle is a black candle which may close below the body of the second white candle.

Both white candles can have a lower tail, but should have no upper tail or at most a short upper tail. The black candle can have an upper tail and/or a lower tail. There are several variations to the black candle which can also be a Hammer, an Inverted Hammer or even a Doji. It is also preferable if the black candle has a fairly narrow high to low range rather than having long upper and lower tails.

The name for this candle pattern is a Japanese name, but the terms 'upside' and 'gap' make it easier to remember. The analogy with a bar chart is that the stock trades up strongly on the two white candle days and then on the third day trades down or pauses giving the impression that a trend reversal might be possible due to the stocks strong advance.

The significance of the Upside Tasuki Gap candle pattern is that the market is showing that it is willing to pay increasingly higher prices for this stock. Should the stock trade above the high of the black candle on the following day, then this is a strong indication that the uptrend may continue.

Bullish Inverted Hammer

chart pattern candle continuation bullish inverted hammer

This continuation candle pattern consists of a two candles. The first candle is a black inverted hammer candle with a weak close followed by a white candle with a strong close. The black inverted hammer can be white.

The white candle can have a lower tail, but should have no upper tail or at most a short upper tail. The close of the white candle should be below the high of the black inverted hammer candle.

The name for this candle pattern is simply based on the inverted hammer candle with the reference to 'bullish' being the white candle reversing the prior day's weak close. The analogy with a bar chart is that the stock trades up on the inverted hammer day, but then trades back down to close around its open. The following day the stock trades up all day to close near the inverted hammer's high thus providing confidence that the strong uptrend may well continue.

The significance of the Bullish Inverted Hammer candle pattern is that the market is showing that it is willing to pay increasingly higher prices for this stock. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the uptrend may continue.

Gapup 180

chart pattern candle continuation bullish gap up

This continuation candle pattern consists of a two candles. The black candle can have a lower tail, but should have no upper tail or at most a short upper tail.

The white candle can have both an upper tail and a lower tail. The close of the white candle should be below the high of the black candle.

The name for this candle pattern is simply based on the black candle's gap open and that the second candle reverses the prior day's weak close. The analogy with a bar chart is that the stock opens strongly on the black candle day, but then trades down to a weak close. The following day the stock trades up all day to close near the black candle's open thus reversing the prior days lose.

The significance of the Gap open 180 candle pattern is that the market is showing that it is willing to pay increasingly higher prices for this stock. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the uptrend may continue.

Pullback pause

chart pattern candle continuation bullish pullback pause

This continuation candle pattern can consist of three or more candles. Except for the last white candle, all the preceding candles are ideally narrow range high to low candles such as Doji crosses and Short candles. The highs of each candle are less than the high of the preceding candle so that the candle highs are declining.

The white candle can have a lower tail, but should have no upper tail or at most a short upper tail.

The name for this candle pattern is simply based on the notion that the stock is undergoing a minor pullback in prices. The analogy with a bar chart is that the stock trades each day of the minor pullback in a narrow indecisive manner and then on the white candle day the stock trades up all day to close strongly thus providing confidence that the pullback was only a pause and the strong uptrend may well continue.

The significance of the Pullback pause candle pattern is that the market is showing that it is willing to pay increasingly higher prices for this stock. Should the stock trade above the high of the white candle on the following day, then this is a strong indication that the uptrend may continue.

Bearish Continuation Patterns

Similarly to the bullish continuation candle patterns, there are equivalent bearish continuation candle patterns that occur frequently. These bearish patterns are merely bullish patterns inverted.

The following figures illustrate the equivalent bearish continuation candle patterns.

chart pattern candle continuation bearish tasuki gap

Downside Tasuki Gap

This continuation candle pattern consists of a three candles. The first candle is a black candle with a weak close followed by a second black candle which gapped down and the third candle is a white candle which may close above the body of the second black candle.

Both black candles can have an upper tail, but should have no lower tail or at most a short lower tail. The white candle can have a lower tail and/or an upper tail. There are several variations to the white candle which can also be a Hammer, an Inverted Hammer or even a Doji. It is also preferable if the white candle has a fairly narrow high to low range rather than having long lower and upper tails.

The name for this candle pattern is a Japanese name, but the terms 'downside' and 'gap' make it easier to remember. The analogy with a bar chart is that the stock trades down strongly on the two black candle days and then on the third day trades up or pauses giving the impression that a trend reversal might be possible due to the stocks strong decline.

The significance of the Downside Tasuki Gap candle pattern is that the market is showing that it is willing to sell the stock at increasingly lower prices. Should the stock trade below the low of the white candle on the following day, then this is a strong indication that the downtrend may continue.

Bearish Inverted Hammer

chart pattern candle continuation bearish inverted hammer

This continuation candle pattern consists of a two candles. The first candle is a white inverted hammer candle with a strong close followed by a black candle with a weak close. The white inverted hammer can be black.

The black candle can have an upper tail, but should have no lower tail or at most a short lower tail. The close of the black candle should be above the low of the white inverted hammer candle.

The name for this candle pattern is simply based on the inverted hammer candle with the reference to 'bearish' being the black candle reversing the prior day's strong close. The analogy with a bar chart is that the stock trades down on the inverted hammer day, but then trades back up to close around its open. The following day the stock trades down all day to close near the inverted hammer's low, thus increasing the market's pessimism that the strong downtrend may well continue.

The significance of the Bearish Inverted Hammer candle pattern is that the market is showing that it will sell stock at increasingly low prices. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the downtrend may continue.

Gapdown 180

chart pattern candle continuation bearish gap down

This continuation candle pattern consists of a two candles. The white candle can have an upper tail, but should have no lower tail or at most a short lower tail.

The black candle can have both a lower tail and an upper tail. The close of the black candle should be above the low of the white candle.

The name for this candle pattern is simply based on the white candle's gap open and that the second candle reverses the prior day's strong close. The analogy with a bar chart is that the stock opens weakly on the white candle day, but then trades up to a strong close. The following day the stock trades down all day to close near the white candle's open thus reversing the prior days gain.

The significance of the Gap open 180 candle pattern is that the market is showing that it is willing to sell the stock at increasingly lower prices. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the downtrend may continue.

Rally pause

chart pattern candle continuation bearish rally pause

This continuation candle pattern can consist of three or more candles. Except for the last black candle, all the preceding candles are ideally narrow range high to low candles such as Doji crosses and Short candles. The lows of each candle are greater than the low of the preceding candle so that the candle lows are increasing.

The black candle can have an upper tail, but should have no lower tail or at most a short lower tail.

The name for this candle pattern is simply based on the notion that the stock is going through a weak rally in prices. The analogy with a bar chart is that the stock trades each day of the minor rally in a narrow indecisive manner and then on the black candle day the stock trades down all day to close weakly thus increasing the market's pessimism that the rally was only a pause and that the strong downtrend may well continue.

The significance of the Rally pause candle pattern is that the market is showing that it is willing to sell stock at increasingly low prices. Should the stock trade below the low of the black candle on the following day, then this is a strong indication that the downtrend may continue.

Candlestick chart

The candlestick chart shown below in Chart 1. shows several examples of Continuation candle patterns.

Chart 1. Continuation Candle Patterns

Candlestick Charting - Continuation Candle Patterns - stock chart showing black and white candle patterns in uptrend and down trend for symbol SPNS

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Continuation Candle Patterns

Candlestick Charting - Continuation Candle Patterns - stock chart showing colored red and green candle patterns in uptrend and down trend for symbol SPNS

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

Candlestick Charting - additional candle concepts; picture of green candles in an uptrend with a laptop computer behind and a black and green background glass panel

Additional Candlestick Concepts

Trade with the Trend

All candle patterns whether they are reversal or continuation patterns work best if they are traded with a stock that is trending strongly. They do not work as well with stocks that are trading in sideways congestion or if the stock price is fluctuating randomly. As such it is better to combine candlestick patterns with other technical analysis techniques in order to determine the trending nature of the stock such as trend-lines.

One of the simplest methods of determining the trending nature of a stock is to use two simple moving averages such as a 50 day MA and a 20 day MA.

A stock is usually in a good uptrend if the 20 day MA is above the 50 day MA and the stock price has spent most of the time above an upward sloping 50 day MA. Conversely, a stock is generally in a good downtrend if the 20 day MA is below the 50 day MA and the stock price has spent most of the time below a downward sloping 50 day MA.

There are numerous other technical indicators that are good at determining the strength of a trend that can be used such as the ADX indicator. Any technical indicator methods used should always be confirmed by visually examining the candlestick chart for its trending nature.

Candle Gaps

Technical analysis generally considers a stock to have gapped up when the gap day's low is greater than the high of the preceding day. Thus on a bar chart there is a clear vertical space between the two bars. Candlestick charting uses the same concept for gaps as bar charts, meaning that it is only considered a gap if the tail and body do not overlap between two adjacent candles, not just the body.

However, there are some special gap considerations with candlestick patterns. There are numerous candle patterns that use a gap open that only requires the open to gap up from the top of the body of the prior day's candle (the high is not important). Thus the candlestick chart may not show this as a true gap since the only requirement was for the stock's open to gap up (not the entire day's trading range).

Gaps are often referred to as windows in candlestick terminology, however many stock traders prefer to use the term Gap in order to maintain consistency with standard technical analysis terminology.

Support and Resistance with Candles

With candlestick charting, the emphasis is strongly on the body rather than the high to low range that is emphasized with bar charts. This means that with candlesticks, the resistance lines can be drawn along the tops of the candle bodies as well as along the candle tail highs. Conversely, the support lines can be drawn along the bottoms of the candle bodies as well as along the candle tail lows. Thus additional support and resistance levels can be identified using a candlestick chart that may not be possible using a bar chart.

With candlesticks, the trader may be able to identify

additional support and resistance levels

A bar chart with only two or three adjacent bars with the same highs is generally not considered a resistance level. However with candlestick charting there is a candle pattern known as the Tweezer Top that considers several adjacent candles with the same high as a resistance level. The pattern is so called since the upper tails of the candles resembles the tips of a pair of tweezers.

The Tweezer Top is considered a bearish candle pattern as any future price movement must penetrate up through this price level and thus is essentially a reversal pattern. Should any future price movement penetrate up through the Tweezer Top, then the pattern becomes a bullish pattern which may act as a future price support level.

The support equivalent to the Tweezer Top is the Tweezer Bottom which is considered a bullish candle pattern as any future price movement must penetrate down through this price level and thus is essentially a reversal pattern. Should any future price movement penetrate down through the Tweezer Bottom, then the pattern becomes a bearish pattern which may act as a future price resistance level.

The Tweezer Top and Tweezer Bottom are illustrated in Figure 1. below and are shown as reversal patterns. These patterns only become continuation patterns on a subsequent break through the resistance or support level.

Figure 1. The Tweezer Top and

Tweezer Bottom

Candlestick Charting basics - additional candle concepts diagram showing Tweezer Top and Tweezer bottom pattern

The color of the candles is not important for the Tweezer Top and Tweezer Bottom, it is only the upper tails that are important for the Tweezer Top and the lower tails that are important for the Tweezer Bottom.

Dominate Candles

Any candle with a body length of at least a common candle that has a significant increase in volume compared to the recent trading volume is known as a Dominate Candle (which can be either a white candle or a black candle). Generally, a dominate candle will not normally have any significant upper and lower tails, although they may have either a relatively small upper tail or lower tail but not normally both.

The length of a dominate candle refers to the body and not the high to low range, so a candle with a large high to low range but with a small body such as a Spinning Top is not a dominate candle even though it may have occurred on high relative volume. A dominate white candle opens and essentially trades up all day on high volume. Conversely, a dominate black candle opens and essentially trades down all day on high volume.

The low of a dominate white candle will often act as a support level and the high of a dominate black candle will often act as a resistance level.

A dominate white candle that breaks out from a resistance level further increase the significance of the dominate candle as this often leads to a substantial move upwards. Similarly, a dominate black candle that breaks down from a support level further increase the significance of the dominate black candle as this often leads to a substantial downward move.

Candlestick chart

The candlestick chart shown below in Chart 1. shows several examples of high volume Dominate candles and an example of the Tweezer Top pattern.

Chart 1. Dominate & Tweezer Candles

Candlestick Charting - additional concepts Candle Patterns - stock chart showing black and white bar color candle patterns in uptrend and down trend for symbol NFLX

Traditionally, Candlestick charts are displayed in Black and White as shown in Chart 1. above. For an up day were the Close is above the Open the body is shown with a black outline and a white inside. For a down day with the Close below the Open the body is filled in black.

Nowadays with computers and color screens together with charting software it's easy to display the candles with a colored theme.

The above candlestick chart is shown again below with the up day candles colored green and the down day candles colored red.

Chart 2. Dominate & Tweezer Candles

Candlestick Charting - additional concepts Candle Patterns - stock chart showing red and green bar color candle patterns in uptrend and down trend for the above chart

The decision whether to use the traditional black and white candle colors or to use a colored theme is an individual preference. The pricing information shown is exactly the same.

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