The Basic Candles

To understand candlestick patterns, one first has to familiarize themselves with the basic candle types. In Figure 1, we saw a basic example of a black and white candle and most often these, or variations of the candles will be seen on the chart and will have no significant meaning whatsoever. These candles will be nothing more than random price movements without any clear signal for trading. However, there are some other variations of daily candles that you should familiarize yourself with before we go on to patterns. Some of these candles may carry important reversal implications when seen at the end of a long trend or at points of support and resistance. Many of these candles can give you an insight to the strength of a trend or a weakening trend. As we go through these candles we’ll explain the psychological implications of each and what may be happening as the buyers and sellers (Bulls and Bears) fight it out to move the price of a stock. Remember that all price movement is due to supply and demand. Try and visualize these candles as an indication of the daily battle between the Bulls and Bears so you can look at the larger picture of the price chart and assess who is winning the war. If you find yourself becoming confused between dark and light candle bodies, try to remember to look at each as if we were talking about the weather. A dark body has a stormy or bearish overtone and a clear body has a bright or bullish outlook. Enough analogies, lets move on to the candles.