Japanese candlesticks are a way of displaying price movements over a specific period of time, such as 5 minutes, an hour, or a day. Each candlestick tells us four things: the opening price, closing price, highest price, and lowest price.
Candle body: the distance between the opening and closing prices.
Upper and lower shadows: they show the highest and lowest prices the asset reached during the period.
A green candle generally means the close is above the open, while a red candle means the opposite.
First: Why Do Candlestick Patterns Matter?
Candlestick patterns do not predict the future with certainty, but they help you understand the struggle between buyers and sellers. They become more significant when they appear near support or resistance areas, with notable trading volume, and in line with the overall market trend.
1) The Doji
A Doji is a candle in which the open and close are very close, so its body is extremely small.
What does it mean?
It often signals indecision: neither buyers nor sellers clearly took control during the period.
How is it read?
After a strong rise: may mean bullish momentum is starting to weaken.
After a strong decline: may mean selling pressure is starting to lose strength.
Within a sideways move: it may not be significant on its own.
A Doji is not an entry or exit signal on its own; wait for a later candle to confirm the direction.
2) The Hammer
The Hammer has a small body near the top of the candle, a long lower shadow, and a short or nonexistent upper shadow.
What does it mean?
The price fell during the period, then buyers stepped in and pushed it back near or above the open. This suggests demand at lower levels.
It is more significant when:
Appears after a downtrend.
It forms near a known support area.
It is followed by a bullish candle confirming the return of buying strength.
3) The Hanging Man
It looks exactly like the Hammer, but it appears in a different place.
What does it mean?
If it appears after a rise, it may indicate that sellers managed to push the price down during the period, even if the price recovered and closed near the high.
Important note:
The difference between the Hammer and the Hanging Man is not in their shape, but in the context:
After a decline: Hammer.
After a rise: Hanging Man.
4) The Shooting Star
The Shooting Star has a small body near the bottom of the candle, a long upper shadow, and a short or nonexistent lower shadow.
What does it mean?
Buyers tried to push the price up, but sellers brought it back down before the close. This may indicate rejection of higher prices.
It becomes more significant when it appears:
After an upward move.
Near resistance.
Followed by a bearish candle confirming the weakening uptrend.
5) The Inverted Hammer
It looks like the Shooting Star, but it usually appears after a decline.
What does it mean?
It shows that buyers tried to push the price up strongly during the period, even if they failed to close near the high. It may be an early sign of a possible change in momentum.
However, it needs confirmation; a bullish candle appearing afterward makes the signal clearer.
6) Bullish Engulfing
It consists of two candles:
A relatively small bearish candle.
It is followed by a bullish candle with a larger body that completely covers the body of the previous candle.
What does it mean?
May indicate a shift in control from sellers to buyers, especially after a decline or near support.
7) Bearish Engulfing
It is the opposite of the Bullish Engulfing:
A small bullish candle.
It is followed by a larger bearish candle whose body covers the body of the previous candle.
What does it mean?
May indicate increased selling pressure after a rise, especially near resistance or after a rapid upward move.
8) The Morning Star and the Evening Star
Morning Star
A three-candle pattern that often appears after a decline:
A strong bearish candle.
A small candle indicating indecision.
A strong bullish candle.
May reflect a gradual shift from seller control to buyer control.
Evening Star
The exact opposite, and it often appears after a rise:
A strong bullish candle.
A small, indecisive candle.
A strong bearish candle.
May indicate weakening bullish momentum and increasing selling pressure.
Important Rules Before Using Patterns
Context matters more than the candle’s shape.
A pattern near support or resistance is much more significant than the same pattern in the middle of a random move.
Wait for confirmation.
Do not rely on a single candle; watch the next candle, trading volume, and trend movement.
Use more than one tool.
Candlesticks can be combined with the overall trend, support and resistance, moving averages, and trading volume.
Do not treat the pattern as a guarantee.
Even a clear pattern can fail because of news, rapid market movements, or low liquidity.
Start with a demo account or by observing the chart.
Train your eye to spot patterns first before linking them to any financial decision.
Lesson Summary
Japanese candlesticks are a shorthand language for price behavior:
The Hammer, Bullish Engulfing, and Morning Star may reflect improving buyer strength under the right conditions.
The Shooting Star, Hanging Man, Bearish Engulfing, and Evening Star may reflect increasing selling pressure under the right conditions.
A pattern has no value without knowing the trend, location, and confirmation.
