What are Candlestick Charts?

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Candlestick charts are a technical trading tool. They determine the price direction and are in practice for centuries. There are numerous candlestick trading patterns. They can consolidate the data into single bars within a certain period.  With the help of candle patterns, you can get a superior position in the market. If we look into the history, we will come to know that these candlestick charts were first used by Japanese rice traders. Now they are so much in practice that any trader can recognize them by name. These include bearish dark cloud cover, three black crows, and evening star. Single bar patterns like doji and hammer are also popular.  

Have a look at the three important candlestick patterns. 

Shooting Star Candlestick:

It occurs at the top of the uptrends. When open, low, or close prices are almost the same, you can see the shooting formation. It is a candlestick pattern that can guide the trader about the resistance and supply. It is indicating that the uptrend might be over. It is a sell signal for the traders. Shooting star candlestick is a technical analysis and is considered by the traders as a mark for a bearish move. In forex, you will find the shooting star pattern the same as in any other chart. It is the reverse of a hammer candle.  It occurs only when at least three successive green candles are materialized.  This shows an increase in price and demand.

Doji Candlestick:

Doji candlestick is another popular pattern for forex trading. It looks like a cross or plus sign. Doji candlestick charts are neutral patterns and are formed when a security’s open and close are equivalent for a specified period. Why is it named Doji? It means blunder as it refers to the same opening and closing price which is very rare. Its three major types are dragonfly, gravestone, and long-legged. Every candlestick pattern has four sets of data that describe its shape.  According to their shapes, rules are made about price behavior. The hollow bar created by the candlestick is known as the body.  The lines that stretch out of the body are known as shadows.  A hollow candlestick is observed if a stock closes higher than its opening. A filled candlestick stick is when a stock closes lower. It is not considered a dependable tool because the happening of Doji is not something common.

Hammer Candlestick:

Hammer candlestick occurs when a security trades lower than its opening. It happens when the decline in the price is observed. The difference between opening and closing price symbolizes candlestick. The shadow represents the high and the low prices for a certain time. This happens when you observe a decline in price after the open but then it reorganizes to close near the open. A hammer is considered to be most effective only when it is followed by three or more declining candles. It is very much like “T”.  You cannot use them alone.  Hammers occur on all time frames including one minute, daily, and weekly charts.