How to Read Candlesticks and Recognize Common Patterns
Summary
The document explains how candlesticks summarize open, high, low, and close prices for a chosen time frame. It describes how bodies and shadows show the range between opening and closing prices and the extremes reached, and how traders may read their shape as clues about buying pressure, selling pressure, or indecision. It also distinguishes bullish and bearish candles by the relationship between open and close.
It surveys common reversal patterns, including harami formations, hammers, three-candle sequences, dark cloud cover, and shooting stars, along with continuation patterns such as doji and rising or falling three methods. The examples are descriptive interpretations rather than tested trading rules. The document cautions that patterns use past prices, can be interpreted differently, and are not standalone buy or sell signals. It gives no performance data or systematic validation, and recommends considering broader analysis and market context.
Key ideas
- Candlesticks encode open, high, low, and close prices over a selected interval.
- The body and shadows depict the open-close range and the period's price extremes.
- Named candle formations are presented as possible reversal, continuation, or indecision clues.
- Pattern interpretations are subjective and should be combined with other analysis.
- The document supplies no empirical evidence that these patterns predict profitable trades.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.