What is the Candlestick Pattern?

1. Anatomy of a Candlestick:

A single candlestick consists of several components:

• – Body: The rectangular part of the candlestick, which represents the price range between the opening and closing prices during a specific time period (e.g., a day or an hour). If the closing price is higher than the opening price, the body is typically hollow or colored white or green (bullish). If the opening price is higher than the closing price, the body is filled or colored black or red (bearish).
• – Wicks or Shadows: These are the thin lines extending above and below the body. The upper wick represents the high price during the time period, and the lower wick represents the low price.

• – Single Candlestick Patterns: These patterns are based on the characteristics of a single candlestick and provide information about market sentiment for that specific period. Examples include:
•   – Doji: A candlestick with a small body and wicks of roughly equal length, indicating market indecision.
•   – Hammer and Hanging Man: Candlesticks with small bodies and long lower wicks, signaling potential reversals.
•   – Shooting Star: A candlestick with a long upper wick and a small body, suggesting potential bearish reversals.
• – Two-Candlestick Patterns: These patterns involve two consecutive candlesticks and provide insights into potential changes in market direction. Examples include:
•   – Bullish and Bearish Engulfing: The second candle completely engulfs the first, signaling a potential reversal.
•   – Harami: The second candle has a smaller body and is contained within the range of the first candle, suggesting a potential reversal.
• – Three-Candlestick Patterns: These patterns involve three consecutive candlesticks and often indicate stronger reversal signals. Examples include:
•   – Morning Star: A bullish reversal pattern consisting of a bearish candle, a small-bodied candle, and a bullish candle.
•   – Evening Star: A bearish reversal pattern with the opposite arrangement of candles.

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