THE ART OF JAPANESE
CANDLESTICK CHARTS
A synchronized mentor for investments
www.candletricks.com
Contents
Types of Charts
Anatomy of candlestick charts
Importance of Real Body & Shadows
Logic & psychology behind Support and Resistance
Power of Single Candle Lines
Advanced Double Candle Pattern
Trade Management
Money Management
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TYPES OF CHART
1. Line chart
2. Bar chart
3. Candlestick chart
LINE CHART
This type of chart is formed, taking only the Closing price of a session. Those ‘closing price points’
are linked together to form a graph.
This type of chart may be used for referring to the long term trends.
Since this type of chart is not formed using sufficient data, it doesn’t reveal anything about the
current market condition.
So, Line charts are not used for the purpose of trading.
BAR CHART
Unlike line charts, the Bar charts are formed using 4 key data points – Open, High, Low, Close (of
a session / day).
Bar charts are actually used for taking trades. But traditionally, a chartist who uses a bar chart
looks for a trend, which takes weeks, if not months to form and takes trades based on that.
So one major drawdown with the bar chart is it’s not ideal for short term trading (like day trading).
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CANDLESTICK CHART
Similar to bar charts Candlestick charts are formed with – Open, High, Low & Close (of a session
/ day). But, since these types of charts are easy to understand, they became quite popular.
The degree of information given out by these charts make them quite reliable; also, they provide
early reversal signals. With these types of charts it’s easy to pinpoint the potential reversal zones.
One main advantage of these types of charts is that, apart from imparting the information on
trend, they also provide indepth information on every session / day. Hence, these can be
conveniently used for the purposes of both short & long term trading.
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shadows
high
high
close
open
Real
body
open
close
low
low
Bullish and bearish candle line
A Candlestick has two main parts:
1. Real body
2. Shadows
Both real bodies & shadows are important in understanding the market condition.
BUYING
NEUTRAL
SELLING
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BULLISH BODY AND TAIL COMBINATIONS
Very
Strong
Strong
Neutral
Aspects
Observation
A candle which has only real body a and has no
shadows at both ends.it is also called marubozu
[Bull].
It denotes bulls are
powerful.
Wide bull candle with flat head and small lower
tail.
Bears might dominate @
the price below lower tail.
Tail is twice or more lengthier than real body .
tiny upper tail acceptable. It is also called
hammer.
It might act as a power
line.
Aspects
Observation
Wide bull candle with small upper tail and flat
bottom
The upper shadow denotes
minor selling pressure
Narrow bull candle flat head and lower tail. The tail
is less the 2x the real body
Shows bulls in control
Wide bull candle with medium upper tail and flat
bottom. Tail must not exceed 100% than real body.
It is the begining of selling
@ the top
Aspects
Observation
Bull candle with towering tail.Tail stretched to 100
% of real body
Evaporation of bulls
control
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Narrow bull candle with tiny tails @ both ends. It is
also called as bull spinning top.
Bearish
Aspects
Crucial moment is near.
Observation
Narrow candle with top tail and flat bottom.Tail
length less than 2x of real body.
Entry of bears.
Tail more than 2x the length of the real body can
have tiny bottom tail.it is also called shooting star.
Beginning of powerful
selling
BEARISH BODY AND TAIL COMBINATIONS
Very
Weak
Weak
Aspects
Observation
A candle which has only real body a and has no
shadows at both ends. It is also called marubozu
[bear]
It denotes bears are
powerful.
Wide candle with tiny upper tail and flat bottom.
Very Weak session of
market.
Tail is twice or more lengthier than real body. tiny
lower tail acceptable. It is also called shooting star.
Bears took charge.
Aspects
Wide bear candle with tiny tail @ both the ends.
Observation
Tiny tail shows some
rejection of bears
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Neutral
Bullish
Narrow candle with tiny top tail and flat bottom.
Tail lesser than 2x times the real body. Tiny lower
tail acceptable
Weak session of market.
Narrow candle with medium tail.Tail upto 100 % of
real body.
Entry of bulls.
Aspects
Bear candle with long bottoming tail.Tail more than
100 % of real body
Observation
Bulls entry
Narrow bear candle with tiny tails @ both ends. It is
also called as bear spinning top.
Crucial moment is near
Aspects
Narrow bear candle with medium tail.Tail less than
2x the length of real body.
Observation
Bulls entry
Tail more than 2x the length of the real body .tiny
top tail accepted. It is also called hammer.
Bulls are getting stronger
If we group the signal candles or patterns logically it will be easy to understand.
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MESSAGES FROM SHADOWS
What do these shadows reveal to a trader?
These lower shadows are occurring again and again, consecutively after the price has fallen; so
It indicates that the selling pressure is weakening / exhausting here, after the bears made their
move. A trader who is in short here, should be cautious here, and think about trailing the Stop
loss for his trade.
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Opposite of what we saw in the previous example:
The higher shadows after big, long moves indicate the exhaustion of buying pressure. A trader
who is long should be able to trail his stop when these types of candles occur consecutively for 2
or 3 days.
SUPPORT & RESISTANCE
Break
out
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In general, the above example just speaks about the break out of trend line. But in fact, it is not
the trend line breakage or something. Only for technical analysis it is applicable. In fact, it is
purely based on the candle. The price and the price action played a vital role @ the right place
for this break out to take place. The arrowed line is the base line or the SUPPORT LINE in this
place. The bullish harami swing point acts as support and when price reaches this support level
price action tends to lead this break out which we will discuss only about this in upcoming
portions.
Break out
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The consolidation breakout occurred after the price reached the support zone. The below
triangle break also implies same in case of resistance followed by the ladder breakout by
support. Thus, support & resistance plays vital role.
LOGICAL SUPPORT & RESISTANCE:
The arrows that are shown in the below example indicates swing highs & lows. It seems that
when price reaches that point some sort of reaction takes place in the price movement. These
points act as support and resistance.
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Major Support
HAMMER (POWER LINE) – NORMS
1. Small real body
2. Color may be red or green
3. No or very less upper shadow
4. Lower tail - minimum twice the real body
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Hammer
In the above image, the arrow shows the occurrence of hammer. That marked hammer we will
name it as point 1. That hammer low is the support. In the next few hours, the price reaches
that point 1. Now wait for any price action. Again, the price action hammer has occurred, now
wait for next bull candle to confirm that hammer. The next bar after hammer is a bullish candle
and confirmed for a bullish movement now. If the risk & reward ratio satisfies as in the image,
the bullish candle is the right place to take a drive.
Note: it is important to place stops loss order for each and every trade for capital protection.
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Hammer
Hammer @
Support
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Hammer
Power Line with
Confirmation
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The above image, there are two similar hammers. Both the hammers occurred after down
trend only. Both the hammers are in support only. Both the hammers are suitable for entry
also. But what makes difference in the entry. The confirmation candle plays a vital role in both
the condition and shows its importance here clearly. So, the entry should not be placed directly
over the head of hammer which will become a headache entry.
Hammer
Hammer
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In the above image, the hammer has occurred at various place. But every price action is not an
entry point. It depends on the trend, confirmation candle and the risk, reward ratio. In the
rounded portion, we got couple of hammers with confirmation bar, so it’s the right place to
drive a trade.
Halt
The above image clearly shows the down trend, and then a small halt, finally the uptrend move
occurs with a hammer and the confirmation candle.
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Power
line
Above pictures show similar examples of the hammer occurrence and the upward movement of
the price.
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INVERTED HAMMER – NORMS
Basic criteria
1. Small real body
2. Green or Red real body
3. Lengthy upper shadow (>2x of Real body)
4. Small lower shadow acceptable
Strong Criteria: No lower shadow
Inverted
Hammer
The above example shows other form of price action (i.e) INVERTED HAMMER. the curved
arrow shows the hammer which acts as a support @this place. When the price reached the
support the inverted hammer formation is occurred. the next candle is strong bullish candle to
confirm long move. So, the price rocked to next resistance level as a target.
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The next example also clearly reveals the importance of inverted hammer formation and the
confirmation bar near to support level. But later the support level was also reached and formed
a power line as a double confirmation. So, the price reversal has happened with a rocket move.
Inverted
hammer
Power line
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Both the images shown above resembles the price movement after the formation of inverted
hammer and also shows strong up movement.
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SHOOTING STAR – NORMS
Basic criteria
1. Uptrend if favorable
2. Green or Red real body
3. Lengthy upper shadow (>2x of Real body)
4. Small lower shadow acceptable
Strict criteria: Red real body without lower shadow
2
3
1
The above examples show’s that after an uptrend, in the resistance a green shooting star has
been formed and next is the strong bearish candle which confirms that shooting star. Where 1
is uptrend, 2nd is resistance level and 3rd is shooting star followed by a confirmation candle. The
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target level could be the next support level. Risk reward ratio must be satisfied before entering
a trade as shown in the example.
Note: The stop loss must be compulsorily placed and trailed @ proper intervals for capital
protection.
T
This example shows the shooting star formation in the resistance
level and price tends to fall down till the support level marked as T
which is nothing but the target.
Below is the shooting star in the resistance level after an uptrend. The bulls got stuck @ one
end and price tends to fall down. The marked lines A, B, and C are support levels. It is advisable
to quit @ first support level or to trail stop@ correct intervals based on candle formation.
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A
B
C
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The previous example shows the market in one side for few hours, the price reversal takes
place with a fine shooting star entry. There are two shooting star formation which are rounded.
The first one is also a fine shooting star, but what about the confirmation candle for that
shooting star. The second rounded shooting star is fine with confirmation bar and signals the
price fall @ this level and trend breakout.
This example is a double top formation in
which shooting star plays vital role with
strong bearish confirmation.
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HANGING MAN - NORMS
1. Red or Green real body
2. No or very less upper shadow
3. Small real body
4. Lower tail - minimum twice the real body
1
2
3
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The previous example is about the hanging man price action.
1 is the bearish harami which acts as resistance level
2 is the hanging man with the strong bearish candle as confirmation bar.
3 is the support level or the target level for that entry.
When the price reaches, the resistance level the hanging man has occurred and the bulls try to
move higher level but couldn’t withstand the bears entry. So, price tends to fall down quickly.
The arrows after uptrend show couple of hanging man @ resistance with strong bearish candle
to confirm short move.
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Hanging man makes
bulls fall into well
This shows the market is in consolidation. A
hanging man has appeared @ resistance level
followed by couple of shooting star for price
breakout.
Break
out
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Hanging Man
When the swing has broken the bulls, end was shown by neutral, later the hanging man showed
bears entry with strong bear candle and price fell down.
NEUTRALIZERS
Norms:
1. Single candle price action
2. small size real body.
3. Very powerful in triggering the future movements.
4. Confirmation is must.
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TREND STOP OR PAUSE OR REVERSE
Trend may stop, pause or reverse after a neutral. Hence a neutral ALWAYS needs a
confirmation.
Neutral
The above picture shows the formation of other single price action is neutral.
The uptrend movement is clearly stopped due to this neutral formation. in this condition, it is a
reversal neutral.
The neutral is a state of neutral formation in which the bulls and bears are equally balanced.
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The next move could be continuation or reversal which we have to find.
So, wait for the formation of next candle and check whether bulls dominate or bears dominate.
In this picture, the next is a strong bearish candle and indicates bears dominate.
So, it’s the time for bulls to quit and bears to enter and ignition of down movement.
R
Neutral
The example above shows, after an uptrend and the swing point occurrence, the neutral candle
as formed, followed by a neutral which denotes the end of up movement.
The strong bearish candle confirms the ignition of downward movement, and free fall of price
occurred.
Note: risk reward ratio must also satisfy for the entry as in the image.
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Neutral
Neutra
l
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R
The above picture shows the neutral which is round marked.
After the uptrend, a couple of shooting star has formed a swing point and act as resistance.
The neutral has formed in that resistance point followed by a strong bearish candle to confirm
it.
So, the price fall is more likely to happen in that point. The target will be the nearest support
level.
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Break out
The above image shows the CONSOLIDATION BREAKOUT, it has started its
Movement with neutral and strong bullish candle to confirm the rocket move.
The following example reveals the down movement after the formation of neutral.
1 is indicates the up movement. Second is resistance level. Third is price action with proper
confirmation bar. So, short is possible shortly.
2
3
1
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Series of Neutral
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The example above reveals same down movement after a series of neutral and a confirmation
candle at the resistance point.
The other form of neutral which the image resembles the name itself.
The example below indicates the neutral in the support point.
It has occurred in the support zone with the strong bull candle. A price has flawed up to
resistance level.
Neutral
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3
2
1
This is opposite to nuetral formation in visual, and neutral resembles the bulls are @ the risk of
grave yard.
1st is uptrend, 2nd is the resistance level, 3rd is the neutral followed by a strong bear candle. So,
when the entry triggered after confirmation candle, the bulls have fallen down.
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This example clearly shows the power
of neutral @ resistance level after an
uptrend where there is very strong
confirmation bar, the price tends to
move down quickly.
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The arrow mark indicates the neutral, which means neutral [i.e.] bulls and bears are in the
equal force. Since it is in support to take long is favorable. As expected the next candle was a
bullish one. So, the bulls dominate here and price moved upwards.
The next example shows two entries based on the neutral candle. the neutral @ resistance
shows short and neutral @support shows long move respectively. After the formation of
neutral the movement started after confirmation bar in both cases.
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The following example shows the formation of neutral candle. The curved arrow shows the
formation of neutral. The neutral here acts as resistance, when the price reached the resistance
the neutral has formed with gap up open, which shows the price is in neutral state. The next
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candle opens with gap down and forms a strong bearish candle. It is a confirmation candle for
price fall to next support level.
The same for the next example too which shows long movement after a neutral followed by
neutral price action.
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ADVANCED DOUBLE CANDLES: [BULLS]
PIERCING PATTERN - NORMS
Two session pattern and prior trend is downwards.
Open of second session below the prior close and green body should close above 50% of red
body.
The rectangular box is the piercing line which normally occurs in down trend as shown. this
pattern serves as an indicator to either buy a stock or close short entries because the price may
soon trend upwards. In this the bears forces the price to open below previous close but,
however bulls step in after the open and push the price higher and it closes above midpoint of
previous candle.
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halt
2
1
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The above shown [1] also resembles a piercing line pattern in the support zone, but yet price
has not moved upward. Although the piercing pattern covered midpoint of previous bear
candle It is a failure entry since [2] indicates a selling pressure in that candle by its shadow. The
previous two sessions are also a strong selling pressure candles. So, it is advisable to avoid
entries @ these situations.
Piercing line – green real body open below previous red candle’s close, and covers more than
50% of the red real body. This two-candle pattern indicates a strong buy signal. Confirmation
candle is not mandatory for this pattern.
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In the above example, you could see that the green candle, although opened below the prior
close, did not close more than 50% into the prior red candle. So, it’s not a valid piercing line
pattern.
BULL ENGULF - NORMS:
Two session pattern and market must be in downtrend.
Green real body covers the red real body completely.
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In the above example the bullish harami low acting as support level, and when price again
reached this support level it formed a neutral followed by hammer and an engulf leads to price
reversal in the above picture.
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halt
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This trend breakout is due to the formation of bullish engulf at support levels.
BULL SASH – NORMS
Trend is not important.
A red bar followed by the green bar, which opens inside the body of red candle and
closes above it.
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The above picture bullish inside bar & below image bull engulf low acts as a support. When
price reached that level, the bears tried to push the price down to create lower lows, but the
bull force dominates with a gap up open and formed a bull sash pattern. The bulls are ignited
and the price moved upwards.
Bulls
ignited
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neutral
Strong bull
Bear force
Bull ignition
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BULL INSIDE BAR / BULL HARAMI
NORMS:
Two session pattern
It is better if market in down trend
First candle long red bar and second a narrow green bar
Green bar must be within the real body of red bar
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These two charts resemble a rocket move of price after small ups and downs in the previous
hours. This happened due to the formation of bullish inner body in the support zone. The child
candle fulfils the need of neutral state followed by a strong bullish bar to confirm the price
reversal.
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The bullish inner body
here is a gap up power
line indicates price
reversal
Bull Bull
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ADVANCED DOUBLE CANDLE LINES: [BEARS]
DARK CLOUD COVER
NORMS:
It’s two session pattern
The second session gaps up and closes below 50 % of the previous candle
In an uptrend market.
Dark cloud cover can also act as a resistance level, as shown above.
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Dark cloud cover – opposite to piercing line pattern. The second red candle opens above prior
close and closes more than 50% into the prior green candle.
In the above example, you could see how the piercing line pattern at a resistance had reversed
an uptrend.
DCC @
Resistance
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DCC @
Resistance
BEARISH ENGULF
NORMS:
Market is in uptrend.
It’s two session pattern and the red real body envelops around the green real body.
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1
2
3
The above example shows about the formation of bear engulf pattern. The price after some up
movement reached the arrow marked with 1 which is the resistance.
2 shows the neutral formation after a strong bullish candle.
3 is the candle which engulfs the neutral and shows bears dominate. So, the price reached to
next support level.
R
The image shows that after an uptrend towards a resistance zone a neutral candle has been
formed. It speaks about the state of neutral condition. The strength of bulls comes to a climax.
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The next candle is a bearish candle which engulfed that neutral state and implies the strong
bearish entry and trend reversal. So, the price fell down to immediate support level.
2
1
The above example reveals about the two-fake bearish engulfing pattern. The first arrow mark
bearish engulfing pattern is fake since it is not in the major resistance point. The 2 nd arrow mark
bearish engulfing pattern is fake since it ends in the support zone. The bear engulf pattern entry
reveals a highway like candle and implies that this is a fake pattern. The risk reward ratio of the
bearish candle must also be noticed. These are the hints to pin out the fake patterns and have
safe entries.
The image above is also same as discussed in the previous example. The price moved upwards
and showed a neutral state. It is then engulfed by bears, but it is not in the resistance zone. The
next session when the price touched the resistance level it formed a shooting star followed by
strong bearish candle to overcome bulls. The bulls became weak and there was a free fall of
price movement.
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After bull trend formed neutral, then reached
resistance level, then formed shooting star
followed by strong bears engulf and finally fell
down.
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this trend breakouts are due to the formation of bear engulf @ resistance zone with proper
confirmation.
BEAR SASH PATTERN
NORMS:
Trend is not an important.
A bull bar followed by a bear bar, which opens within green real body and closes under
prior open.
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After
Small
pullback
Bears
entry
Neutral
state
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What about
this candle?
Wide range
candle
What this
indicates?
result
The following image shows the momentum move of the candles after taking the bear sash
pattern as support.
Here 1 is the high of the sash pattern and
2 is the bear sash in which the price overcomes the pattern.
3 is the bull engulf @ support zone which will remain as the entry point for long move.
4 is the neutral candle and its low is the exit.
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4
1
3
2
On entering short @ rounded bear sash pattern Obviously,
the arrowed hammer low will be the next support level in
this stage, so check the risk reward ratio before entering the
trade
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BEAR INSIDE BAR / BEAR HARAMI
NORMS:
Two sessions pattern, that occurs after an up-trend market.
First is a long bullish candle and the second may be green or red candle.
Second candle must be within the green real body.
The above image shows the trend breakout. But the breakout could not simply be specified by
just drawing a trendline and breaking out of it. The concept that lies behind is the formation of
price action @ resistance level with proper confirmation. The price action here is the bear
harami. The mother candle however shows high wave, whereas child candle is the climax of the
uptrend since it is similar to that of neutral like formation. The next candle is strong bear which
confirms the trend reversal.
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There are two example below that shows a wide range bullish candle at the resistance level. In
the next arrowed session price tends to move higher level but couldn’t withstand the bull force.
So, it created a neutral state with harami formation. The next timeframe a strong bearish
candle appeared to confirm downside move.
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These two chart formations appeared in two different scripts, although the scripts are different,
the message conveyed by candles are similar in both the cases. The bearish harami high is the
highest high as well as resistance level. The price with wide range bullish candle tends to move
upper level @ resistance zone. But its movement is stopped by formation of shooting star along
with neutral and showed a neutral state. The next session with strong bear entry implies the
domination of bears for down move.
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TRADING DISCIPLINE
✓ Create a trading plan and follow it strictly.
✓ Take trades only after a proper candlestick signal.
✓ Enter a trade only if it has more than one confirmation.
✓ Never enter a trade without a stop-loss.
✓ Do not second guess the trade after entering.
✓ If the price moves against your expectation wait for the stop to be taken out.
✓ Before taking a trade decide all the entry, stop loss and target levels.
✓ Do not chase the trade.
✓ Do not enter a trade due to an emotional push.
✓ Always wait for the candle to close, before you decide based on it.
✓ Do not take others’ opinion to enter/exit a trade.
✓ Control your emotions!
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MONEY MANAGEMENT
1. Minimize the risk:
Place stops for every trade you take. Do not risk more than 2% of your capital.
2. Diversify:
Do not invest all your capital into a single trade, no matter how strong the trade looks.
3. Calculated risk:
Always calculate the risk and reward before taking a trade. If the risk is greater than the
potential reward, skip the trade.
4. Let the profits grow:
Once the price reaches the first target level, loosen up 50% of your position and hold on
to the remaining to enjoy more profits.
5. Trail the stop:
When you want to enjoy, more profits give the price some space to move around, but
trail your stop without fail.
6. Use technical stops:
Do not decide the stop loss level based on emotions/biases. Stop loss should, strictly, be
technical.
7. Protect the profits:
Sometimes, the price might reverse even before the target level is reached. In that case,
it’s better to protect the profits.
DISCLAIMER: - These recommendations are based on the theory of technical analysis and
personal observations. This does not claim for profit & Loss. We are not responsible for any losses
made by traders. It is only the outlook of the market with reference to its previous performance.
All Judicial You are advised to take your position with your sense and judgment. We are trying to
consider the fundamental validity of stocks as far as possible, but demand and supply affects it
with vision variations. If any other company also giving same script and recommendation, then
we are not responsible for that. We have not any position in our given scripts. Visiting our web
one should by agree to our terms and condition and disclaimer also.
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