Candlesticks show the four main prices levels (open, close, high, and low) for a given period, coloured according to the direction of price movement. The regularly occurring patterns from the candlesticks assist the traders in predicting the short-term price direction.
Due to their ease of interpretation and superior visual appeal, candlesticks are more popular than line and bar charts.
Candlesticks have three basic features as follows:
The real body
It shows the difference between the open and the close price for a period. They are often one solid colour, or hollow, displaying colours only on their edges.
These are thin lines above and below the body showing movement above and below the open and close prices, hence indicate the intra-day highs and lows.
They give the direction of the market movement. A black or red body indicate price decrease. A white or green body shows price increase.
The patterns are either bullish or bearish. Bearish patterns indicates price fall, and the bullish pattern shows prices might increase. Below are some of the candlestick patterns:
• Bearish evening star- The last candle in the pattern opens below the small real body of the previous day showing stalling of the buyers, then controls by the sellers.
• Bearing engulfing- This is reflected by a small green real body getting engulfed by a long red real body showing sellers are taking control.
• Bullish engulfing- This appears in a decline and has a short red candle next to a larger green one. Buyers are taking control, and the price could get higher.
• Bearish harami- A small red real body is entirely inside the prior day’s real body, representing indecision amongst the buyers.
• Bullish harami-The previous day’s large red real body engulfs a small green real body, indicating the trend is pausing.