Candlesticks: the 5 that actually matter
A candlestick sums up the fight between buyers and sellers in a period: where price opened, where it closed, and how far it reached up and down. There are dozens of patterns with exotic names, but the truth is only a few add real value. These are the 5 worth knowing.
First, how to read a candle
The body runs from the open price to the close. The wicks (or shadows) mark the high and low. A green (or white) candle closes above where it opened: buyers won. A red (or black) one, the opposite. The size of the body and wicks tells a story: a big body is conviction; long wicks, rejection.
The 5 that matter
- Hammer: small body at the top and a long lower wick. Price fell but buyers pushed it back up. At support, a sign of a possible turn up.
- Shooting star: the hammer upside down. Long upper wick: sellers rejected the rise. At resistance, a warning of a turn down.
- Engulfing: a candle whose body "eats" the previous one. Bullish engulfing after a fall = shift of strength to the buyers.
- Doji: open and close almost equal, tiny body. Indecision. After a long trend, it warns strength is fading.
- Marubozu: big body with barely any wicks. Pure conviction in one direction.
Context is everything
Here's what almost no tutorial says: a candle in isolation means nothing. A hammer in the middle of nowhere is noise. That same hammer right at important support, after a fall, is a powerful signal. The candle pattern only counts when it appears at a level you were already watching. First the level, then the candle as confirmation.
The typical mistake: hunting patterns everywhere
The beginner learns the names and starts seeing hammers and dojis in every corner of the chart, trading them blindly. It's the recipe for overtrading. Candles aren't entry signals on their own: they're the last piece that confirms an idea you already had for other reasons (a level, a trend). Use them as confirmation, not as a trigger.
Where to start
Stick to just the hammer and the engulfing at first. Look for them only at clear support and resistance on your daily chart. Once you master that use, the rest of the patterns explain themselves. You don't need to memorise fifty candles: you need to use five well.