The Candlestick pattern was developed in Japan 100 years ago. In the 1700s, a Japanese man named Homma discovered the link between the price and the supply and demand of rice, influencing the market by using the emotion of the traders. 

This way, candlestick came into existence. It shows that emotion by providing a visual representation of movement in the price size using different colors. Traders use the chart to make trading decisions. These decisions are based on patterns that occur regularly and forecast prices in the short term. The most popular ones are Doji and Hammer Candlestick patterns. 

Components Of Candlestick Pattern

Candlestick patterns show the open, high, low, and close prices of the day of the market. It comprises a wide part known as the real body. This real body is the price range between the open and close of that particular day’s trading. The entirely black real body indicates a lower close than the open, whereas the white or hollow ones signify a higher close than the opens. These colors can be altered in the trading platforms. For instance, a downtrend candle is often colored red instead of black, and the uptrend candles are green rather than white. 

What Is The Difference Between A Candlestick Pattern and A Bar Chart?

Candlestick patterns contain shadows and wicks above and below the real body. This shadow indicates a rise and fall in the prices of a particular day’s trading. If the upper shadow is considerably short on the down candle, the opening of that day is nearly high. The short upper shadow on a bullish day indicates that it was close to the high end. The relationship between open, high, low, and closed days determines the appearance of the day candle. The real body can be long or short and black or white. Shadows can be long or short.

Both the bar chart and candlestick chart provide similar information but quite differently. Candlestick charts have more visuals and highlight the opening and closing rates appropriately. 

What Are The Basic Candlestick Pattern?

Candlesticks showcase the upward and downward movement in the prices. These price movements sometimes appear randomly, while the other time, they form patterns used by the traders for analysis or trading purposes. The basic candlestick patterns are explained below:

Bearish Engulfing Pattern

A bearish engulfing pattern is usually developed in an uptrend where the seller outnumbers the buyers. You can see the action in the form of a long red real body engulfing a small red real body. It indicates the control sellers have, and the continuous decline in the prices. 

Bullish Engulfing Pattern

A bullish engulfing pattern usually occurs in the bullish side of the market when the buyer outruns the seller. It comprises a long green real body engulfing the red one. It signifies that a bull has established its control in the market and the prices have significantly increased.

Bearish Evening Star

The evening star is a tall pattern that is valued by opening the last candle under the small real body of the previous day. Note that the real body can either be red or green in this pattern. This pattern indicates an interruption in the working of the buyers and sellers taking control of the market. 

Bullish Rising Three

This pattern begins with what is known as the Long White Day. In the second, third, and fourth trading sessions, the small real bodies then lower the price but are still in the price range of the long white day (the first day in the pattern). The fifth and final day is the pattern of another long white day.

Bearish Falling Three

This pattern begins with a sturdy day down. It is followed by three small real bodies that progress upwards but stay inside the range of the first day down. This pattern completes when there is a large downward movement on the fifth day. It indicates the sellers taking control of the market and a decrease in the prices. 

Although emotion has been discovered centuries ago, investors’ emotions still have a crucial impact on the asset’s movement. The candlestick pattern helps investors gauge these views of stocks and other assets and enables them to make better predictions.