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How to Read Candlestick Charts for Day Trading

Candlestick charts are well-known in technical analysis as they permit traders to swiftly assess price data by just using a few price bars. Let’s start with a definition of candlestick charts.

What is the Meaning of a Candlestick Chart?

Candlestick charts are technical indicators that combine information from multiple time frames into a single price bar. This sets them apart from open, low-close bars or basic designs that link closing price dots. Candlesticks generate patterns that predict price direction if they are finished. This colorful technological tool, which dates back to eighteenth-century Japanese rice sellers, gets depth with proper color coding.

It has three distinct features:

The body represents the open-to-close range.

The wick, or shadow, shows the intraday lows and highs.

The color shows the direction of price movements: a green (or white) body indicates a price increase, while a red (or black) body indicates a price decrease.

Basics of Chart ReadingĀ 

  • Points to Bear in Mind


It would be best to have a firm grasp of the elapsed timeframe. In a candlestick chart, the time is shown on the x-axis, and the prices are shown on the y-axis. To take advantage of small price swings, day traders use 5-, 10-, or 15-minute candlestick patterns to enter and exit positions within the next few minutes. This practice is known as scalping. You may use a variety of chart types to get a better sense of how much the price has changed over time.

It’s all about the price

Day trading is all about determining the stock’s ‘trend,’ or whether or not it will climb or decrease shortly. This may be done with the use of price action analysis. The term “uptrend” refers to a stock’s upward movement, whereas “downtrend” refers to its downward movement.

Patterns in Candlestick Charts

Even if a single candle can provide sufficient information, a pattern can only be discovered by comparing that candle to the ones that came before and after it. To reap the benefits of candlestick chart patterns, traders must first understand them. To make things simpler, I’ve divided up the designs into two sections:

  • Bullish patterns
  • Bearish patterns

Bullish Patterns

1. Hammer Pattern

The wick of this candle appears to be longer than the rest of the body. Near the bottom of a downward trend, it is virtually always present. It suggests that even though sales were constrained, a large increase in demand drove higher prices. Bull markets are more aggressive when they have a green body than a red one.

2. Inverse Hammer Pattern

In reality, this is a candle with an unusually long wick and a short base. It’s also common to find it at the bottom of a steep downhill. Buying pressure is present for a short time, followed by selling pressure. There is also the implication that consumers will soon take control of the market.

3. Engulfing Pattern

The first candlestick is a red candle that a green one swallows in this two-candlestick arrangement. Even though the price starts lower than the day before, this signifies a positive market where the price rises.

4. Morning Star Pattern

The morning star candlestick appearance is viewed as a sign of hope during a market drop. A three-stick arrangement placed a short-bodied candle between two long green and red candles. The ‘star’ usually does not cross over with the longer bodies due to the market gaps on the open and close. So, the selling pressure from day one has waned, and we’re on our way to a bullish market.

5. Piercing Line Pattern

Following an extended green candle, a long red candle is placed next. Similarly, the closing price of the second candle should be more than halfway up the first candle’s body, as well. So much buying pressure, in other words.

6. Three White Soldiers

The pattern of three white soldiers develops after three days. Each day’s opening and closing are higher than the previous day’s, and the candles are green (or white) in color. Bullish indicators come after a slump and show a long-term growth in buying power.

7. Abandoned Baby

This is a resemblance to the Morning Star pattern. The second candle is a doji rather than a little green candle. This reversal pattern was formed after only a single downturn.

8. Spinning Top

A spinning top might signal a trend reversal towards the bottom of a downtrend. After a lengthy period of decline, a spinning top may indicate a trend reversal if the next candle is green.

Bearish Patterns

1. Hanging Man Pattern

This candle has a short body and a long wick at the bottom, and it’s frequently found near the peak of a rising trend. It means that selling forces were greater than buying pressures, suggesting that bears are acquiring market power.

2. Shooting Star

Akin to the inverted hammer, but with an upward trend with a small bottom body and a long upper wick, the shooting star is quite different. A falling star-like pattern occurs when the market opens slightly higher, rises to an intraday high, and falls back toward the open.

3. Evening Star

In this three-candle arrangement, a short-bodied candle is wedged between a long-bodied red and a long-bodied green candle. Most of the time, the short and long candles do not cross each other. If this continues, it might mean that the rising trend is about to come to a stop. A reversal of gains in price on the first and second candles would be particularly significant in this case.

4. Bearish Engulfing

Following an upward trend, bearish engulfing patterns begin to form. Even though the first candle has a small green body, the long red candle that follows quickly consumes it. It signals a price peak or slowdown and is a forewarning sign of an impending market downturn. The lower the next candle is, the more likely the trend will continue.

5. Three Black Crows

This three-candle pattern consists of three red candles with short wicks. Compared to the previous day, these candles had lower starting and closing prices. After an upward trend, this is a sure warning that a bear market is about to begin.

6. Dark Cloud Cover

If the previous day’s optimism appears to be engulfed by a black cloud, this indicates a bearish turn. It comprises 2 candlesticks: a red candlestick that opens slightly above the previous green body and closes below its midway, and a green candlestick that opens much above the preceding green body and closes below halfway. It suggests that the bears may have taken control of the session and are driving the industry downward at the moment. Candles with short wicks show that the slump was severe.

7. Abandoned Baby

This design is based on the Evening Star. The second candle is a doji or perhaps just a red candle. Following an upward trend, this pattern suggests the beginning of a downward trend.

8. Spinning Top

Spinning tops at the peak of an uptrend may indicate a change in trend direction. The red candle that follows a spinning top and an upswing may be an indicator of reversal of a trend.

Doji Patterns

1. Dragonfly Doji

A dragonfly’s doji looks like a ‘T’ sign. Dragonfly Doji near the bottom of the downtrend may suggest that the price will recover shortly. In other words, the sellers may have tried to lower their prices but were thwarted by the buying power of the public.

2. Gravestone Doji

A tombstone dragonfly doji with a ‘inverted T’ sign. Using the tombstone doji as an indicator, the price could be poised to decline. Due to sellers’ sway, it appears that buyers were unable to push up prices.

Day trading candlestick charts have been explained in detail here. However, as we all know, theory and practice are poles apart. That said, it doesn’t matter how much you know theoretically; putting it into practice will help you confirm that you’ve got it correctly. Taking The Thought Tree‘s Stock Market course will provide you access to real-time trading chances every day.

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