Candlestick Patterns were invented in Japan in the late 17^th century. It was first used there for rice trading at Dojima Rice Exchange. Homma was the first trader to make fortune using this method. The patterns created by him are still used in Japan. This chart contains the data of open-close prices, high-low prices in the form of a candlestick.

It is a very interesting technique. The candlesticks change color depending upon the speculation. For instance if the prices exceed towards the close, the candlestick turns hollow and its color is changed to white or green. Similarly if the open price exceeds the close one the candlestick changes into a filled black or red color. The high price and the low price are also indicated in a unique way. The thin lines at the top and bottom of the candlestick provide information about these. The upper shadow ends at the level indicating the high price and the lower shadow ends at the level of low price. Candlestick patterns are popular for the fact that they have a very pleasant and comfortable outlook as compared to the other techniques like the bar charts, etc.

Through Candlestick patterns one can also gain some additional information about the prices regarding the association between the high and low and open and close. Candlestick charts reveal the data of the probable market strength. There are around 40 candlestick patterns used for trading. Out of which there are 12 that are more often used to predict the price movement. These 12 patterns are used by most profitable tradespersons while making decisions. However, that does not mean that the rest of the patterns are useless. It is just that those combinations occur rarely in the trading. When the open and close prices are equal, this pattern is known as the Dojj. In this situation the investors are generally hesitant to act. When both the open and close price becomes low, it is known as Gravestone Dojj.

The situation is known as Long-legged, when the candlestick has one or two very strong shadows. This indicates that the market has reached its top. The image of a Rikshaw Man is formed when the open and close are located in the middle. This situation shows a losing trend. The end of downtrend marks the Bullish Engulfing Pattern. On the other hand, it is called the Bearish Engulfing Pattern when the uptrend comes to an end. A dark cloud cover occurs if the bearish pattern lasts for two days and reaches the end of an upturn.

A piercing pattern is formed at the bottom reversal. Long shadows at the bottom with small size real bodies are called Hammer or Hanging-man. This occurs when the market trends down. It is also known as “trying to gauge the depth” or takuri by the Japanese. The Shooting star Formation is a signal of the bullish market approaching.                                                                                   Hope this article gives a fair idea of a few candlestick patterns and how they work.