Master the Candlestick Basics!Today’s lesson is all about candlestick basics, not the common candlestick that you know but more precisely the likes that are used in everyday trading. Numerous strategies are based on candlestick trading making it a must know tool in your everyday trading system. What are the candlesticks? Candlestick is considered as being one of the oldest types of chart used to predict future price movement. They were developed centuries ago by Japanese rice traders to help them visually display price activity over a specific trading period. It is believed that the founder of the candlestick, who was a rice trader, made his fortune solely on the candlestick pattern (he must have been a big rice eater!). The shape and colors of the candlesticks were named by the traders’ themselves where each candlestick represented the trading activity for a period of time. What do they look like? There are four main elements pertaining to a candlestick, they are: • The high The main body of the candlestick represents the range between the opening and closing prices:
An empty candlestick, as shown above is formed when the closing price is higher than the opening price. It is usually referred to as a bullish candlestick. 
A colored candlestick or filled-in body is formed when the opening price is lower than the closing price. This is usually referred to as a bearish candlestick. Note: The thin vertical lines above and below the body are called the upper/lower shadow. They are the high and low prices for the period.
There are around 41 different candlestick pattern and definitions. The good news is that you do not need to know all 41 of them, though it may be an advantage. You only need to familiarize yourself with around 8 to 10 of them. Below is a list of the most important candlestick basics, and the only ones you need to watch out for that as they occur rather frequently in a days trading.
Doji: They have no real body as you may notice from graph. Its shape is very similar to a cross. Interpretation: The open and close at the end of the trading time is the same. 
Hammer: A small body with a long lower wick (shadow) and no upper wick. Interpretation: Bullish signal during a downtrend.
Inverted hammer: Is the opposite of a traditional hammer. It has a filled-in body that looks like an upside-down hammer. Interpretation: A bottom reversal signal. Confirmation is required from following bar.
Hanging man: is a small empty body with a long thin lower shadow and no upper shadow…around four times the height of the body. Interpretation: Signals a bearish pattern during an up-trend.
Gravestone Doji: A doji that looks like a gravestone where the open and close are at the bottom of the bar. Interpretation: Is a bearish signal at the top of an up trend. The longer the wick the more bearish is the signal.
Long-legged Doji: A doji having long upper and lower wicks. Interpretation: A top reversal signal.
Long-lower Shadow: A candlestick having a low lower wick with a length as long as the range of the candlestick. Interpretation: Bullish signal.
Long-upper Shadow: A candlestick with a long upper wick with a length as long as the range of the candlestick. Interpretation: Bearish signal.
Bullish Harami: A large filled-in body followed by a small empty body, which is contained within the large body. Interpretation: A bullish pattern preceding a downtrend.
Bearish Harami Cross: Pattern where a doji is contained within a large empty candle. Interpretation: This signals a top reversal move.
Bullish Cross: Pattern where a doji is contained in a large filled-in body Interpretation: This pattern signals a bottom reversal movement.
Doji Star: A doji that gaps just below or above a candlestick. Interpretation: Opening of next candle will confirm if reversal is up or down. In the case of above pattern, if an empty candlestick is formed after doji, it means that reversal will be pointing north.
Evening Doji Star: Pattern is a large empty candlestick followed by a doji that gaps above previous body. The last candlestick is a filled-in body that closes half way or more into empty body. Interpretation: This is a very bearish signal confirming reversal of price movement.
Evening Star: A pattern where a large empty body is followed by a smaller empty one that gaps above the large empty body. The last candlestick has a filled-in body and closes half way or more into the larger empty body. Interpretation: Top reversal signal.
Engulfing Bearish Line: Small empty body followed by large filled-in body where small body is contained within larger body. Interpretation: Pattern signifies a top price reversal.
Engulfing Bullish Line: Small filled-in body followed by a large empty body where small body is contained within the large body. Interpretation: Pattern signifying a bottom reversal signal.
Morning Doji Star: Pattern is a large filled-in candlestick followed by a doji that gaps below previous body. The last candlestick is an empty body that closes nearly half way or more into empty body. Interpretation: Bottom reversal signal. At last, we are done with those candlestick basics. The candlesticks basics above are some of the most popular formations you will come across. Some will occur more often than others. Remember that the man how created those candlesticks build his wealth only on those patterns. You may want to study them and apply them on your charts. With the help of some other indicators, it may help you pick some good winners. Happy trading. Top of: Candlestick Basics Page
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