Candlestick is the base of technical analysis and was invented by Japanese rice traders in the 1800s to track the price of rice.
Candlesticks are known to give out information in sets of Open, High, Low, Close.
This is a basic structure of a candlestick:
One thing to remember is open and close are inverted for a bearish candle.
- Hammer is a candlestick pattern with a long wick. If it’s a bullish candle it shows buyers have rejected the lower prices for the candle and at the end of the day buyers are more powerful than sellers so the probability for a green candle is more the next day.
- Hanging man is another bearish version of the hammer. It tells us that sellers were more powerful that day and there is more selling pressure the probability of the next candle being a red candle is high.
- Prior trend is also important to know.
- If in a downtrend hammer appears then it’s a sign of reversal and bulls will take control soon. If in an uptrend hanging man appears then it’s a reversal sign and soon bears will take the control.
- This image tells us that we don’t have to remember each and every candlestick pattern.
- We just have to understand the psychology of buyers and sellers behind that candlestick pattern and that can be most prominent by the length of their wicks.
- We have to pair candlesticks with patterns or indicators on different time frames for confirmation. Trading alone on candlesticks can cause heavy losses.
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