Reading Candlesticks — Candle Psychology and Key Patterns

Overview: One Candle Is One Period’s Psychology

Candlestick charts originated in Japan’s Edo-era rice trading and are now the global standard. A single candle holds four prices — open, high, low, close — and the tug-of-war between buyers and sellers within that period.

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1. Candle Structure

A candle is a body with a wick above and below it. The tip of the upper wick is the high and the tip of the lower wick is the low. In a bullish candle the bottom of the body is the open and the top is the close; in a bearish candle it is the reverse — open at the top, close at the bottom.

Part	Meaning
Body	Between open and close. Longer = stronger one-sided force
Bullish	Close > open (up). Often green/white
Bearish	Close < open (down). Often red/black
Upper wick	Pushed up to the high then rejected → selling pressure
Lower wick	Dropped to the low then recovered → buying support

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2. Single-Candle Patterns

Doji — open ≈ close

A cross shape with almost no body. A state of indecision where buyers and sellers are balanced; appearing at the end of a trend it can signal a reversal.

Hammer — long lower wick

A long lower wick at the bottom of a downtrend means buying interest and is read as a bounce signal. The same shape at the top of an uptrend (Hanging Man) warns of a fall.

Shooting Star — long upper wick

A long upper wick at the top of an uptrend suggests a possible shift to selling.

Long Bullish / Bearish Candle

A very long body. Signals one side’s strong conviction and often marks the start of a trend.

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3. Multi-Candle Patterns (2–3 candles)

Pattern	Composition	Meaning
Bullish engulfing	Small bearish → large bullish that fully covers it	Strong buy reversal at a bottom
Bearish engulfing	Small bullish → large bearish that covers it	Sell reversal at a top
Morning star	Bearish → doji → bullish	Bottom reversal
Evening star	Bullish → doji → bearish	Top reversal
Three white soldiers	Three consecutive bullish	Upside acceleration
Three black crows	Three consecutive bearish	Downside acceleration

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4. Principles for Using Candle Patterns

1. Location decides meaning — a hammer at a bottom signals a bounce; in the middle of nowhere it’s meaningless.
2. Read it with volume — engulfing and long candles are more reliable when volume comes in (Lesson 5).
3. Never trade it alone — bet only when candle signals overlap with support/resistance, moving averages, and other evidence.

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Key Takeaways

1. A candle holds open/high/low/close and the buy/sell psychology inside.
2. Wicks record “failed prices” — upper = selling pressure, lower = buying support.
3. Single patterns (doji, hammer, shooting star) and multi patterns (engulfing, star) suggest reversals.
4. A pattern’s reliability depends on where it appears and the accompanying volume.

Next lesson: We cover moving averages, which show the flow candles create at a glance — golden/dead crosses and ribbon alignment for judging trend.