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Candlestick Patterns Beginner's Guide - How to Read Candlestick Charts? - YouTube
Channel: Earn2Trade
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Greetings traders and welcome back.
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Thank you for joining me again.
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Chris here, bringing you another
Survival Guide.
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Today's subject will be candlestick
patterns.
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This is a fun one for me specifically
because I am a big T.A. trader myself.
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I love technical analysis and candlestick
patterns are at
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the core of technical analysis.
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It's been around since the 1700's.
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It's something that has been around
for a while and will
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be around for a while because we
look through the market
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landscape, what do we see when we're
looking at the different
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path that price has taken? We start to
see certain shapes.
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Then as we continue looking and continue
logging, humans
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found that some of these shapes are
repetitive in nature in the market.
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The market itself is cyclical at its core,
and as such the
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idea is that these candlestick patterns
will repeat themselves
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at some point in the future.
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We're going to cover some of the bullish
ones, as well as
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some of the bearish ones.
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Without further ado, let's get get going.
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Candlestick patterns are also referred to
as Japanese candlestick charts,
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or Japanese candlesticks as well.
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You're going to see people talk about this
online as well.
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We're arguing over what the correct
terminology is, but realistically
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there's just not much of an argument.
In the 1700's, an individual
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by the name of Munehisa Homma was credited
with starting the first candlestick
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pattern analysis. Essentially what they
are, these charts are like what
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we were already looking at if you are
totally brand new. It's
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a way of visually representing
the historical location
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that price has been. It tells us what the
open is, what the
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close is of a particular period of time, as
well as tells us
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how far on the extremes it went during
that period of time.
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Candlesticks themselves are going to
give us information
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for whatever specified period of time that
we set our charts
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to. If these candlesticks over here are
daily candlesticks,
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meaning we have our chart set to a daily
time frame, every
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single candlestick, this guy and this guy,
will represent all
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of the price movements that occurred
during a one-day period,
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and it gives us some valuable information
that we can assess
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and interpret in a relatively short
period of time. That's
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the beauty of candlesticks, and that's why
they are so incredibly
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popular. On a quick glance,
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we could analyze this bar on the left, and
the first thing
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off the bat that we know with this guy here
is that the price
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went up. What do we mean? Well, the price
went up between the
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open and the close. How do we know that?
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Well, the fat portion of the candle,
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the big blocky portion of the candle,
this guy here,
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this is what is referred to as the body.
The body represents
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the difference. The space between the body
represents the
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amount of price change between the
open and the close.
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That's what we've got going on with a body.
Then you'll notice
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that there's this skinny portion that
sticks out the bottom,
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and this is where the term "candlestick"
comes from. This is
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what makes it look like a candlestick.
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It looks like we have a big wax body
with a wick sticking
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out the top and/or the bottom. Now, I don't
know what candles
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you're buying, mine generally don't have
a wick out of the bottom,
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but in the trading world here, they do.
We have the wick
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that comes out of the top, of the bottom,
and this represents the extremes.
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This tells us where price was, but not
where it opened and
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not where it closed.
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It reached a high point up here at the very
extreme end of the top of the wick,
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and it reached a low point down here
at the very extreme
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end at the bottom of the wick. We know that
during a one day
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period, just by a quick glance,
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we can see where price opened from the
close of the previous
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day, we can see where price closed off at
at the end of the
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trading day, and during the day, we can see
that it had an
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absolute low point down here, and we had an
absolute high point up here.
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Just on a quick glance, one candle can tell
us all of that
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information. With this information,
coupled together with
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a couple candles, it starts to tell a
story, and that's what
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candlestick patterns are. On the right hand
side here,
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you see yourself a red candlestick.
What does that mean universally?
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Usually a red candlestick is a bearish
candlestick,
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so right off the bat that means that we
are expecting to
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see that price closed downward.
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With a red Candlestick, the open is always
going to be the top of the body.
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The top of the body here is always going
to be the open
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for a bearish or red candlestick.
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The close will always be the bottom
of the body.
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It's just simply inverse version of the
bullish. With the
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bullish, because we know that it's colored
green that it went
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up. We know that it opened to the bottom
and closed at the top
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because that is what has to happen for
something to close
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up. It has to have gone up in price.
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Once again, bullish candle sticks start
off at the bottom,
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they open at the bottom of the body and
close at the top
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of the body, and then the wick just tells
us what happened
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during that day, during that period,
whatever we have it set
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to. Then the bearish is just the opposite.
The bearish
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opens the top of the body, and then closes
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at the bottom of the body, and then once
again the wick tells
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us more or less how excited price got
throughout the trading
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day. Now, we're going to take a look at
some of these candlestick
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patterns when they start forming specific
shapes, where they've
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been recognized to potentially provide
an expected outcome
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thereafter. The first ones that we're going
to go through
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will be bullish, and then we'll work our
way into some bearish candlestick patterns.
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That means, when I say bullish, I'm
expecting an upward outcome
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after the pattern. If I say bearish, that
means I'm expecting
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a downward outcome after the pattern.
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Our first one is going to be the Morning
Star. The Morning
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Star is going to be a pattern where we
have price kind of doing
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its thing, coming downward, and then all of
a sudden, we have
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ourself this drop in price. Remember, with
the bearish candlesticks, the red ones,
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we have an open at the top of the body, a
close at the bottom
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of the body, and something crazy happened
all the way down
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here. Price actually gapped all the way
down here, and opened
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down here, and then closed upward,
which is something that
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can happen with price.
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We had a small body here, with a small wick
on either side,
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and this is called a Morning Star formation
because it is standing
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out a way from the rest of the bunch.
After the formation
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of this, if we are given another candle
here where we've got
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a bullish confirmation. This process here
where we're going
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from this bearish to this bullish is
considered a bullish
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read, and we would be expecting price
to rise thereafter.
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Next up we have the Bullish Engulfing
candle. This one's quite fun.
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It's something that looks something
akin to a big candle
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gobbling up the candle next to it.
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That's where the name, the engulfing
portion, comes from.
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What we need here is a big bullish
candle to be gobbling
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up a bearish candle before that.
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There's a trick with this one:
The entire candle must
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be contained within the body of the big
engulfing candle.
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What we have here is a situation from
where the body is
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starting down here, because it's a
bullish candle.
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It's white. It's opening at the bottom of
the body and closing
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the top of the body like we discussed.
Then, as we look
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to the left, the bottom and the top is
completely encasing
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all price movements from the
previous candle.
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This is a Bullish Engulfing candle
because it is engulfing
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the candle prior. The expected outcome
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after we see this two candle set up, is a
bullish outcome thereafter as well.
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Next up we have one called The Hammer.
"Collaborate and listen",
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don't take me down off YouTube because of
my terrible singing.
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Anyway, so what we have here is The Hammer.
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This is a fun one too, because another
strong reversal indicator.
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This is going to literally look
something like a hammer.
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We need price to gap down, so another
gap is required for this pattern.
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We need price to gap downward, then open
at the bottom.
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We need a bullish candle here, because this
is a bullish Hammer
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that we're looking at. Then it is going to
work its way
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upward with almost no wick at the top.
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This is a perfect example, because we have
no wick the top.
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It's okay if it has a little bit of a
wick, but we do not
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want a large wick. The idea here is no wick
at the top of this candle
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preferably speaking, and a long wick
underneath.
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What the wick underneath tells us in this
scenario, with The
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Hammer here, is that we had a large battle
here with the buyers
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and the sellers, and ultimately, it was
the buyers that won during
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this candle. Why? Because price was all
the way down here, but
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did not stay down there. Buyers pushed it
back up, and we stayed and closed at
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the highest point of the candle.
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This is a strong bullish read, and after we
see the formation
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of this, we are expecting a
bullish move thereafter.
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Next up on the chopping block is the
Bullish Harami.
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This is one that you will see quite
often as well,
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but it is sometimes tricky to find. It can
blend in with regular price movements.
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What we're looking for here is a downward
movement in price
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because this is an idea that we're going
to expect a bullish
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reversal after the Harami has formed, a
Bullish Harami that
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is. What we need here is a regular
standard sized bearish
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candle here, but then what we have is a
small candle. Think of
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the engulfing setup that we talked about,
but the other way
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around. Now, we have a small bullish candle
where the body
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is completely contained inside the Harami.
Harami actually means baby in Japanese
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if I do remember correctly.
Don't quote me on that one.
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The idea here is, this large candle is
pregnant with
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a smaller candle. Sounds ridiculous, but
the end outcome after
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we see this setup is, we are expecting
a bullish ride upwards.
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The idea here is, the reason that
we're expecting this
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is because the lows are actually higher
consecutively between
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these two candles, and we actually had the
bulls hold through
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without pushing lower whatsoever,
gaining traction from the
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time that the candle opened, to the time
that the candle closed.
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We have a Bullish Harami in this scenario.
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Once again, we would expect price to work
its way upwards.
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A lot of times with this pattern,
traders are not interested
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in jumping in until price passes the high
of the pregnant
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candle. That would be somewhere over
here, where we'd be
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finally interested in a long if we were
to take that ideology.
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Next up we have another bullish pattern.
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This is the Abandoned Baby. All these
babies all over the
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place. With the Abandoned Baby, the
bullish Abandoned Baby,
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what we need, obviously, is price to be
coming down because,
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once again, it's a bullish pattern, which
means it is a reversal
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of, well, I guess technically it doesn't
have to be that way,
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but this is a bullish reversal, should have
said that. What
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we have here is a trajectory where price
is pushing downwards,
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and then we have this large gap where we
have this lonely baby down here.
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Just hanging out by itself, you know.
Someone called a 25 cent a day channel.
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What we've got here is this baby jumped
its way down.
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We have a large gap, and it's essentially
going to be a doji.
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We want a very small candle here, almost no
wick on the top
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side, no wick on the bottom side, basically
looking like a plus sign.
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We don't want much of a body at all.
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Then we need another gap upward,
so this is a three candle pattern.
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We need a bearish candle to get us kicked
off with the bullish baby setup.
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Then, we need to have a gap down for
our alone little baby,
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and then we need to have another
gap upward.
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It requires two gaps.
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We have another gap upward,
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and then we've got ourself the bullish baby
set up, and this
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overall is going to be a bullish trigger,
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meaning we're looking to go long,
especially at the point
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that the bullish candle finally gets higher
than the high
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of the bearish candle at the beginning
of the setup.
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Now we've got ourselves a bearish
candlestick pattern to
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throw into the bunch to give you an idea
of what these look like as well.
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With this Evening Star, this is much like
our Morning Star,
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just the other way around.
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We need price to be working its way
upwards like this
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candle was doing, and then all of a sudden,
we had ourself a gap upwards.
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Why do we have a gap upwards?
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Because bullish candles close at the top,
bearish candles
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open at the top. We actually opened up
here, even though
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we previously closed down here.
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We've got ourself a gap upwards, and a
small, almost doji-like candle here.
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We have little to no body, and little to no
wick on either side as well.
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Once again, we are kind of just up there
in the air closing
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right around the high point of the bullish
candle, and naturally,
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we're going to open at the close in
most cases. That's
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what we had, and then price continue
to push down.
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This is going to be the Evening Star setup,
and realistically,
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the Evening Star is visible with just two
candles, but if
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you want to wait for this third one over
here for your confirmation,
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there's nothing wrong with that either.
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The idea here is because it's a
bearish setup,
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this is basically going to be identified
with a bearish reversal in the market,
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meaning the market was traveling upwards.
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Then now, we are expecting it to begin
traveling downwards
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after this setup on the period that
we're analyzing.
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When we throw another bearish pattern into
the mix, once
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again, this is another pattern,
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we're going to find when the markets
getting ready to dump
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downwards in a lot of situations,
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what we have here is a situation where we
have the Shooting
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Star, which is something like the
Evening Star, but a little
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bit different. It's like an inside-out, or
I'm sorry, an inverted
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Hammer of sorts, but different with this
nature that we've
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got this small little body here, little to
no wick on the
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other side, but it is okay if we have a
short wick on the
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other side of the Shooting Star.
Once again, what we
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need here is little to no wick on the
bottom side. An
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upside down Hammer formation here.
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Then, we've got ourself a bearish
push thereafter.
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The idea is this candle is standing alone,
and we're seeing
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the momentum wean off just like throwing
a ball in the air
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right before it begins falling back down.
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That's what this is showing us here with
this Shooting Star setup.
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Next up for another bearish
candlestick pattern,
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we have the Bearish Harami Cross. The
Bearish Harami Cross, and you guessed it,
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it does look in fact like a cross, which
means we have little
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to no body for this pattern as well.
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We actually do require a bit of a gap
situation for the
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truest sense of the Harami Cross because
why? What are we
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looking for with Harami? Pregnant
candlesticks. That's what we've got.
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Here's the pregnant candlestick.
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It has contained the candlestick
thereafter, so here's our
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baby that's sitting inside, and it is
looking like a little bit of a cross.
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It has closed ourself technically down.
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It is orange on my screen, which we are
using to represent bearish candlesticks.
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It has opened, closed, and been contained
with inside the pregnant
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candlestick on the left. Once again,
because it is bearish,
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we are actually expecting a downward
turn after this.
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This is akin to the previous pattern,
telling us that the
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market is kind of running out of steam
and falling off just
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like that analogy that we used before. That
kind of applies here as well.
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In conclusion, candlestick patterns have
been around for centuries,
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and are still in use today, even by a lot
of our traders that
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are currently passing the Gauntlet Mini,
remember to check that out
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if you think you have what it takes to
be a successful trader.
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If you pass the Gauntlet Mini, you have the
opportunity to get
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a deal. Other than that folks, there are
candlestick patterns
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in front of our eyes all the time.
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We can look at a chart and see
a story unfold, as long
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as we understand how to speak
the language. I could talk about
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candlestick patterns for hours and hours,
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and if you'd like to hear me talk more
about them, definitely
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mention it in the comments below, and we'll
see what we can do for you.
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Until next time folks, thank you for
joining me yet again.
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It has been a pleasure as always.
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I will see you all very soon. Cheers folks!
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