Lesson 6: Types of Candles
Each candle has its own story and significance. Recognizing different candlestick patterns is essential as they indicate market sentiment and potential trend reversals. While memorizing their names is optional, understanding their meanings is crucial. Let’s explore the key candlestick formations.
DOJI
A DOJI candle is characterized by a small or nonexistent body, with long upper and lower shadows. It signifies market indecision, where neither buyers nor sellers dominate. There are four types of DOJI candles:
If a DOJI appears after a prolonged uptrend or downtrend, it may indicate a potential reversal.
Always wait for confirmation from the next candle before making a trade decision.
Spinning Top
Similar to the DOJI, the Spinning Top has long shadows and a small body, also indicating market indecision. It often appears at the end of a trend and may suggest a potential reversal.
The Hanging Man
A Hanging Man candle forms at the end of an uptrend and signals a possible trend reversal. It has a small body with a long lower shadow, suggesting sellers are starting to take control.
If red, it strongly indicates a potential downturn.
Wait for confirmation before acting.
The Hanging Man
A Hanging Man candle forms at the end of an uptrend and signals a possible trend reversal. It has a small body with a long lower shadow, suggesting sellers are starting to take control.
If red, it strongly indicates a potential downturn.
Wait for confirmation before acting.
The Hammer
The Hammer looks similar to the Hanging Man but signals the opposite—a possible upward reversal after a downtrend.
Its shadow points downward, showing that buyers are stepping in.
Confirmation is required before entering a trade.
Shooting Star
The Shooting Star indicates a downward trend. It has a long upper shadow and a small body, signifying that buyers pushed prices up, but sellers regained control.
Shooting Star
The Shooting Star indicates a downward trend. It has a long upper shadow and a small body, signifying that buyers pushed prices up, but sellers regained control.
Tweezer Tops and Bottoms
This pattern consists of two consecutive candles with almost identical highs or lows. It suggests a possible trend reversal:
Tweezer Tops signal a bearish reversal.
Tweezer Bottoms indicate a bullish reversal.
Marubozu
A Marubozu is a strong candle with no shadows, indicating clear market dominance:
A green Marubozu signals strong buying momentum.
A red Marubozu suggests powerful selling pressure.
This candle is more reliable on higher time frames (1H, 4H, 1D).
Bullish Engulfing Pattern
Occurs at the end of a downtrend when a green candle fully engulfs the previous red candle, signaling a potential reversal. Confirmation is necessary.
Bearish Engulfing Pattern
The opposite of the Bullish Engulfing Pattern. Found at the end of an uptrend when a red candle completely engulfs the previous green candle, indicating a shift to bearish momentum.
The Morning Star
This is a three-candle formation at the end of a downtrend:
A long bearish candle.
A DOJI (indicating indecision).
A strong bullish candle covering 50%-70% of the first candle.
The Evening Star
The opposite of the Morning Star, appearing at the end of an uptrend. It consists of:
A long bullish candle.
A DOJI.
A strong bearish candle covering 50%-70% of the first candle.
Inside Candlestick Formation
A simple but powerful pattern where a large mother candle engulfs the next few candles. When the mother candle is broken, price action often follows the breakout direction.
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