Basics of Candlesticks (Part 2) - Types of Candlesticks
There are primarily three types of candlesticks we follow. All other candlesticks are derived from these three. They are:-1. Doji
2. Engulfing
3. Hammer
Doji: A standard doji is a single candlestick whose open and close price is at the same level. This candle does not signify much on its own just shows that confusion has been created in the market. It is recommended to observe the prior price action building up to the Doji.
Types of Doji: Gravestone Doji appears when price action opens and closes at the lower end of the trading range. After the candle open, buyers were able to push the price up but by the close, they were not able to sustain the bullish momentum. At the top of a move to the upside, this is a bearish signal.
Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and signals the potential for a change in direction. There is no line above the horizontal bar which creates a 'T' shape and signifies that prices did not move above the opening price. A very extended lower wick on this Doji at the bottom of a bearish move is a very bullish signal.
Engulfing: An engulfing candlestick is a very strong candle which has a huge body that shows power because there is a very small or no wick observed in the candle. A bullish engulfing pattern forms when a small red candlestick is followed by a large green candlestick, the body of which completely overlaps or engulfs the body of previous candle. A bearish engulfing pattern forms at the end of some upward price movement. It is marked by the first candle of upward momentum being overtaken, or engulfed, by a larger second candle indicating a shift towards lower prices. The pattern has greater reliability when the OPEN price of the engulfing candle is well above the CLOSE of the first candle, and when the Close of the engulfing candle is well below the Open of the first candle.
Hammer: A hammer is formed of a short body with a long wick. It shows that although there were selling/buying pressures during the respective timeframe, ultimately a strong selling/buying pressure drove the price back up/down. A bullish hammer is formed of a short body and a long lower wick, when price takes rejection from the lower level (LPR) and is formed at the bottom a downtrend. A bearish hammer is formed of a short body with a long lower wick, when price takes rejection from higher level (HPR) and is formed at the top of an uptrend.
To learn application of these candlesticks for technical analysis and spotting crucial patterns, subscribe with our learning service https://www.pristinebreakthroughs.com/learning.php
