Candlestick patterns — what are they and how to identify them

Candlestick patterns are a price chart analysis tool that helps traders and investors understand future price movements. This technique is based on observing price charts and visually identifying special patterns called candlestick patterns.

What are candlestick patterns?

Candlestick patterns are a method of analyzing price charts that was developed in Japan in the 18th century. It is a visual representation of price changes for a specific asset over a specific period of time. Note that trading candlestick are presented in the form of “candles”, each of which has three parts: the body of the candle, the upper and lower “wick”. The body of the candle shows the difference between the initial and final price of an asset over a certain period of time. If the body of the candle is shaded or spotted, it may indicate a downward price movement, and if the candle is completely open, it may indicate an upward movement. The upper wick shows the maximum price of an asset for a given period of time. The lower wick shows the minimum price of an asset for a given period of time.

How do they work?

Candlestick patterns are used to identify patterns and trends in the market. Traders and investors analyze sequences of candlestick patterns to predict future price movements. For example, a hammer is a candlestick pattern that can indicate the possible end of a downtrend and the beginning of an uptrend.

Where can I find out how to identify candlestick patterns?

Learning to identify candlestick patterns is an important skill for trading and investing. There are many books, online courses and resources where you can learn about the different candlestick patterns and their meanings. Here are a few ways to do this:

  • online courses — many websites and online platforms offer training courses on technical analysis, including candlestick patterns. You can find free and paid courses to help you master this skill;
  • books — many books on trading and technical analysis include chapters on candlestick patterns. Choose books from authors known for their knowledge of financial markets;
  • forums and communities — join forums and communities related to financial markets. Here you can communicate with other traders, exchange experiences and learn from experienced professionals.

Identifying candlestick patterns takes time and practice. Don’t rush into trading on a live account until you feel confident in your skills.