Title: "Understanding Candlesticks: A Guide to Types and Patterns

What are candlesticks?

• Candlestick is a type of charting that contains the open, close, high, and low prices of an asset for a specific time period. Candlestick charts offer more information than standard line charts, which just show the close price or average price. As a result, candlestick charts instead of line charts are more often used in technical analysis.

Three components make up a candlestick: wicks, closing price, and opening price. Candlesticks convey information regarding price movement by indicating the price direction—either bullish or bearish.

• Open price: the first traded price of a particular pair traded at that moment is referred to as the opening price.

• Close price: The closing price is the last traded price of a certain pair that was traded at that moment.

• Wick: wick represents the difference between a pair's opening and closing prices in terms of price.

Types of candlestick patterns

Based on the trend direction, candlestick patterns are divided into two main categories.

• Bullish candlesticks patterns

• Bearish candlesticks patterns

These two patterns are further divided into:

• Range market patterns,

• Trend continuance patterns, and

• Trend reversal patterns.
  

What is chart pattern?

Chart patterns are natural price variations of a financial asset that are came on by a variety of variables, including human activity.

• A chart pattern is a shape found within a price chart that helps in predicting what prices are doing moving forward based on prior performance.

• Technical analysis is based on chart patterns, which require a trader to be fully aware of both what they are looking at and what they are searching for.

• The underlying principle of technical analysis is chart patterns.

• Chart patterns are used in technical analysis to identify trends in the price movement of an asset.

Types of chart patterns:

Chart patterns fall broadly into three categories: continuation patterns, reversal patterns and bilateral patterns.

• A continuation signals that an ongoing trend will continue

• Reversal chart patterns indicate that a trend may be about to change direction

• Bilateral chart patterns let traders know that the price could move either way meaning the market is highly volatile.

What are Head and shoulders pattern?

• A head and shoulders chart pattern has two slightly smaller peaks on either side of a large peak. In order to forecast a bullish-to-bearish reversal, traders look for head and shoulders patterns.

• The first and third peaks will often be smaller than the second peak, but they will all return to the same degree of support, or the "neckline," as a result. It is expected that the third peak will break out into a bearish decline once it has returned to the level of support.

Double top: What is it?

• Another pattern that traders use to draw more attention to trend reversals is a double top. An asset's price will often reach a peak before declining to a level of support. Then, it will rise once more before turning around more permanently against the current trend.

Double bottom: What is it?

• A period of selling that caused an asset's price to fall below a level of support is indicated by a double bottom chart pattern. It will then increase till a point of resistance before declining once more. Finally, as the market turns more positive, the trend will reverse and start moving upward.

• Because a double bottom signals the ending of a downtrend and the beginning of an uptrend, it is a bullish reversal pattern.

Rounding bottom: What is it?

• Both a continuation and a reversal might be indicated by a rounded bottom chart pattern. For instance, an asset's price during an uptrend may decline slightly before rising again. This would continue the bullish trend.

• If the price of an asset was in a downward trend and a rounding bottom developed before the trend reversed and started a bullish uptrend, then is an illustration of a bullish reversal rounding bottom.

• In order to profit from this pattern, traders will want to buy halfway around the bottom, at the low point, and profit from the continuation after it breaks over a level of resistance.

Cup and handle: What is it?

• The cup and handle pattern is a bullish continuation pattern that is used to depict a period of bearish market sentiment before the general trend finally moves in a bullish direction. The handle and cup resemble wedge patterns, which are discussed in the following section, and a rounding bottom chart pattern, respectively.

• The price of an asset will probably experience a brief retracement after the rounding bottom; this retracement is called as the handle since it is limited to two parallel lines on the price graph. The asset will eventually reverse out of the handle and continue with the overall bullish trend.

Wedges: What is it?

• Wedge patterns are examples of trend reversal patterns. They consist of support and resistance trend lines that move in the same direction as the channel narrows, until one of the trend lines is broken, which immediately reversing the trend on high volume.

There are two types of wedge:

• Rising,

• Falling.

Rising wedge.

• A rising wedge is represented by a trend line caught between two upwardly slanted lines of support and resistance.

• In this case the line of support is steeper than the resistance line.

• This pattern generally signals that an asset’s price will eventually decline more permanently – which is demonstrated when it breaks through the support level.

Falling wedge.

• A falling wedge occurs between two downwardly sloping levels.

• In this case the line of resistance is steeper than the support.

• A falling wedge is usually indicative that an asset’s price will rise and break through the level of resistance.

Both rising and falling wedges are reversal patterns, with rising wedges representing a bearish market and falling wedges being more typical of a bullish market.

Pennant or flags: What is it?

• Pennant patterns, or flags, are created after an asset experiences a period of upward movement, followed by a consolidation.

• Generally, there will be a significant increase during the early stages of the trend, before it enters into a series of smaller upward and downward movements.

• Pennants can indicate a continuation or a reversal and can be bullish or bearish.

• An illustration of a bullish continuation is the chart above. Because they exhibit either continuations or reversals, pennants can be viewed in this sense as a type of bidirectional pattern.

• It's important to keep in mind that wedges are narrower than pennants or triangles, even though that a pennant design resembles a wedge pattern or a triangle pattern. Additionally, a wedge is either rising or descending whereas a pennant is always horizontal, making wedges different from pennants.

Ascending triangle: What is it?

• The ascending triangle represents the continuance of an uptrend and is a bullish continuation pattern.

• A horizontal line can be drawn along the swing highs, the resistance, and an ascending trend line can be formed along the swing lows, the support, to create ascending triangles.

• Ascending triangles usually have two or more peak highs that are identical, making it possible to create the horizontal line.

• The horizontal line indicates the degree of historical resistance for that particular asset, while the trend line represents the pattern's overall upward trend.

Descending triangle: What is it?

• A descending triangle, on the other hand, denotes a bearish continuation of a downward trend.

• In order to profit on a falling market, a trader typically takes a short position during a descending triangle, just using CFDs. Because descending triangles are an indication of a seller-dominated market, they generally move lower and break through the support, making successively lower high more common and unlikely to reverse.

A horizontal line of support and a downward-sloping line of resistance are indicators of descending triangles. The trend will eventually breach the support, and the downward movement will continue.

Symmetrical triangle: What is it?

• The symmetrical triangle is a consolidation chart pattern that occurs when the price action trades sideways. This considered to be a neutral pattern,

• Two trend lines that merge and connect a series of highs and lows constitute this pattern.

• The trend lines should be converging to form an equal slope.

• Depending on the market, the symmetrical triangle formation can be bullish or bearish.

• In any case, it is typically a continuation pattern, which indicates that after the pattern has formed, the market will typically keep moving in the same direction as the general trend.

• When the price converges with a series of lower high and higher bottoms, symmetrical triangles are formed. The symmetrical triangle in the example below reveals that there has been a brief time of upward reversals even though that the general trend is bearish..

• The market could, however, break out in either direction if there is no clear trend before the triangular pattern takes shape. As a result, symmetrical triangles are a bilateral pattern and are best applied in choppy/unstable markets where it is unclear which direction the price of an asset will likely move. Below is an image of a bilateral symmetrical triangle.

What is pin bar candlestick?

• The pin bar, a candlestick pattern with a long upward or downward tail, indicates the price rejection at a level of support or resistance in trading. A pin bar candlestick is a type of trend reversal candlestick pattern. It was invented in the 17th century by a Japanese rice trader named Munehisa Homma.

• There are two conditions to determine a valid pin bar candle.

• The pin bar candle's body cannot take up more than 20% of its total size.

• The candle's wick or tail has to be at least 80% filled.

It is classified into another two categories.

• Bullish pin bar: The candlestick's long tail will form below the body.

• A bearish pin bar will develop, with the long tail forming above the candlestick.

Morning Doji Star: What is it?

• A series of three candlesticks called the Morning Doji Star includes a bearish candlestick, a Doji candle, and a bullish candlestick. This is a bullish candlestick and a bearish trend reversal candlestick pattern.

• It will form at the bottom of the price chart and is made up of three candlesticks.

Long legged Doji: What is it?

• A Doji candlestick with a long lower and upper wick is known as a long-legged Doji candlestick. The beginning and ending prices are the same for every Doji candlestick. Different types of Doji can be classified by their high and low.

Long-legged Doji is a symbol of market volatility.

There are two different kinds of long-legged doji

• Bearish Long Legged Doji

• Bullish Long Legged Doji

Bearish Long Legged Doji

• At the peak of an uptrend, a bearish long leg doji forms. This indicates that the market will continue to decline. Also, the Bearish Long Leg Doji should leave a gap in the next candle that is down.
  

Bullish Long Legged Doji

• At the bottom of the downward trend, a bullish long leg doji forms. The following candle should simultaneously be opened gap up. It indicates that the market will rise.

What is Rising Window ?

• The term "rising window" refers to a price difference in an upward price trend.

• It happens when the high from yesterday is lower than the low from today, creating a gap on the daily price chart.

• The pattern, which works as a bullish continuation pattern, shows up in a rising price trend.

• Although rising windows are common, it becomes increasingly challenging to locate one when the time scale grows longer.

Gap-up is another name for a Rising Window candlestick pattern.

What is Falling Window?

• Two bearish candlesticks with a down gap between them make up the candlestick pattern known as the "falling window."

• The Four-Price Doji is the only type of candle that can't be used for both of the candles in the pattern.

• The price gap between the high and low of the second candle, which is the pattern's most important characteristic.

What is Tweezer Bottom?

• A Tweezer Bottom is a bullish reversal pattern made up of two Japanese candlesticks with almost same bottoms that appears at the bottom of downtrends.

• The matching bottoms can also be the candle bodies but are typically made of shadows (or wicks).

• Short-term bullish reversal patterns called tweezer bottoms are considered to indicate a market bottom.

• When prices are being pushed lower by sellers during a downtrend but are unable to move the bottom further, the session generally ends near the lows.

What is Tweezer top?

• The tweezer top candlestick pattern is a bearish reversal pattern that consists of two candlesticks. When a stock is experiencing an uptrend, a green candlestick first occurs on the first day of the trend. The second day begins with a strong high that is almost identical to the first.

• Since there is a high winning ratio, retail traders frequently use technical analysis to predict future trends.

Tweezer top candlesticks are a similar pattern to pin bar candlesticks.

What is Dragonfly Doji Candlestick?

• When a stock's open, close, and high prices are all at the same level, a candlestick pattern is known as a "dragonfly doji." Dragonfly doji patterns don't always show up. It serves as a technical indication that alerts traders to the possibility of a price reversal in the asset.

• It is a candlestick pattern that indicates a trend reversal, but the trend won't be confirmed until the price breaches the Doji candlestick's high.

What is a Doji Candlestick?

• A Doji candle is a type of candlestick formation that occurs when the open and closing prices are almost equal and the shadows are extremely long. The horizontal line of the Doji pattern is referred to as the body, while the vertical line is known as the wick.

What is Gravestone Doji?

• A Gravestone Doji resembles a Dragonfly Doji in appearance. Gravestone pattern differs from other Doji formations because it has a long top wick rather than a lengthy descending shadow.

• At the peak of uptrends, the Gravestone Doji candlestick pattern can be seen as a bearish reversal. The Gravestone Doji might show traders the region of increase in price resistance. It is frequently used in conjunction with other technical indicators to identify a possible uptrend.

Gravestone Doji and Dragonfly Doji are different from one another.

The two candlesticks differ significantly in two ways:

• The gravestone Doji will indicate a bearish trend reversal, whereas the dragonfly Doji will indicate a bullish trend reversal. This is the main distinction between the two candlestick patterns.

• Technically speaking, a gravestone doji has a large wick above the candlestick's closing price, and a dragonfly doji has a huge wick below the candlestick's closing price.

What is Three White Soldiers?

• On a trading chart, the three white soldiers pattern is a bullish candlestick formation that appears at the base of a downtrend.

• The pattern is made up of three green candles, as the name would imply. Because of the intense buying pressure, traders think that this formation indicates a price reversal is going to occur.

• The reverse of the three white soldiers is called the three black crows. Three consecutive red candlesticks that appear at the peak of an upswing serve as a symbol for this pattern.

What is Evening Doji Star?

• Evening Doji Star behaves as a bearish reversal of the upward price trend because price rises into the pattern and breaks out downward.

• An evening doji star is made up of a long bullish candle, a Doji that gaps up, a second bearish candle that gaps down, and a third bearish candle that closes well within the first candle's body.

• An Evening Doji Star is a three candle bearish reversal pattern that resembles the Evening Star.

• The only difference is that the second candle's Evening Doji Star must be a Doji candle.

What is Rising Three Methods?

• The Rising Three Methods pattern appears in an uptrend and is a continuation pattern. This pattern's opening candlestick is a small real body, light bullish candlestick. The few candles that come after should be smaller, dark-colored bearish candles. The height of these candlesticks must not be greater than that of the previous candlestick.

What are the three ways to detect a rising three method pattern?

• As seen in the graphic below, the rising three methods pattern generally consists of at least five candlesticks, with two bullish and three (or more) bearish candles.

• More specifically, the final bar is a bullish candlestick and the first bullish candle is followed by at least three bearish candles.
  

The rising three method pattern must meet the following basic requirements:

• The starting candle should have a positive body and short tail.

• There will be three or more bearish, or red, candles after the opening candle. These bearish candles should not break the first candle's bottom and their bodies should be smaller than the first candle's.

• A strong bullish or green candle should come after the last short candle to complete the pattern. The body of the last candle should be as solid as the body of the first candle, and it should close above the top of the first candle.

What is Falling Three Method?

A falling three methods pattern is defined by two long candlesticks in the trend's direction, one at the beginning and end, and three shorter candlesticks in the middle that are the opposite of the trend

• The Falling Three Methods pattern is a downtrend-specific bearish continuation pattern.

• Three small body candles that are completely contained within the range of the first candle's high and low are placed after a long black or red body.

• The fifth candle closes at a new low.

Investors can tell by looking at the falling three methods pattern that the bulls are still lacks the conviction to change the trend.

What is Bullish Abandoned Baby?

• A bullish abandoned baby is a bullish reversal pattern, which means that when it develops at the end of a downturn, it denotes a trend reversal. Three candles make up the bullish abandoned baby, the first of which is bearish and is followed by a gap down. The last candle gaps up and ends as a positive candle, while the second one gaps down and turns into a Doji.

What is Bearish Abandoned Baby?

• A bearish abandoned baby is a trend reversal candlestick pattern consist of a bearish candlestick, a bullish candlestick, and a Doji.

• The Doji candlestick develops between a bearish and a bullish candlestick, and a gap appears before and after it.

During an uptrend, the bearish abandoned baby forms.

It has three candles,

1. the first of which is long and white or green in colour.

2. The second candle in the series is a Doji that gaps above the first bar's close.

3. The third candle has a lengthy body, a black-and-red colour, and it opens below where the second bar closed.

Traders use this pattern to move from a buy position to a sell position.

What is Three Black Crows?

• Three bearish long-bodied candlesticks make up the Three Crows pattern, a bearish reversal pattern.

• Each of the three candlesticks should have a long body and be bearish, with a starting price that is lower than that of the previous candlestick.

• It should only be taken into consideration when it appears after an uptrend because it is a bearish reversal pattern.

The Three Crows pattern indicates a possible reversal to the downtrend as well as weakness in a continuing uptrend.

What is High-Wave Candlestick Pattern?

• A high wave candlestick pattern indicates that the market is confused and neither bullish nor bearish.

• It generally happens at levels of support and resistance. Here, bulls and bears compete to push the price in a specific direction.

• The pattern of candlesticks is shown by long, lower shadows and long, higher wicks.

What is Three Stars in the South?

• Three bearish candlesticks combine to form the Three Stars in the South, a bullish reversal candlestick pattern. Each candlestick that forms in this pattern does so within the previous candlestick's range.

• Three black or red (down) candles of decreasing size constitute the bullish Three Stars in the South candlestick pattern, which is quite uncommon and doesn't frequently signal major price movements. It frequently happens after a drop in price.

• Three white or green (up) candles that are getting smaller together make a bearish pattern. It typically happens after an increase in price.

What is Deliberation?

• A deliberation structure is made up of three Japanese candlesticks. All three are bullish (green). The first candlestick has a small body and is followed by a large candlestick with a huge candle. Finally, the last candlestick also has a small body and forms a star.

How to identify deliberation candlestick patterns?

To recognize a deliberation pattern, three bullish candlesticks must appear in a particular order and configuration.

1. There will be a huge bullish candlestick to the first one.

2. The second candlestick must open above the prior candlestick's opening price and end above the previous candlestick's high.

3. The last candlestick need to have a small body and the same openinig price. It can close either above or below the high of a previous candlestick. But the candlestick should be bullish.

What is Bearish Kicking?

• Bearish Kicking is a reversal pattern formed by two candlesticks. The pattern starts with a black Marubozu candlestick and appears during an uptrend. The second candlestick, a white Marubozu, gaps below the close of the first.

• A bearish trend in the market can be predicted using the bearish kicking candle. It generally develops on stock or index price charts. It can occasionally serve as a candlestick for a trend continuation.

What is Bearish Breakaway?

In this pattern, the current trend is seen beginning to slow and then filling of the gap is seen.

The bearish breakaway pattern consists of five candles,This pattern is a reversal that appears during an uptrend.

1. The first candle in the formation is long and white or green.

2. On the second candle, which is generally very long, the price moves higher and forms a gap..

3. The third candle can be either black or white, but it does not stop the stock price from rising.

4. The fourth candle maintains the previous trend's course.

5. The fifth candlestick, which has a long black body and changes the trend's direction, moves forward in that direction to close the gap.