As one may know, a lot can be learned from the shape of simple Candle Stick patterns. Therefore, traders have identified a number of instantly identifiable Candle Stick shapes and used these as the first step in their Candle Stick analysis.
Big Red and Green Candles
These candles have a long real body and are when the asset has opened near its low / high and closed near its high / low. In the case of a close above the open, it is termed a Big Green candle and in the case of close below the open it is a big red candle.
A big red candle can be a simple indicator of a bearish pattern whereas a Big Green candle is seen as a bullish indicator. The Big Red and Green candle are an extension of a standard red / green bodies.
In general, long bodies are considered strong signals of either buying or selling pressure. In the case of the green candle, it is a bullish indicator which shows that prices advanced significantly since the open with the closing price high above the open.
In the case of a long red body, the converse is true. It is a bearish signal as the closing price is far below the open. These big bodies can usually mark a turning point on a resistance or support level.
A Doji is a candle where there is virtually no body on the candle. They are formed when the opening and closing price of the asset are extremely close together. Below is an example of a simple Doji.
There are also two more specific Dojis and they differ according to where the body of the candle is placed. These are the Dragonfly Doji and the gravestone Doji. These are presented on the right.
The candle on the left is the Gravestone Doji. With this Candle Stick, the opening and closing levels are both near the candle’s low point. This is usually a bearish indicator.
On the right we have the Dragonfly Doji. With this candle, the opening and closing positions are both usually quite close together and near the candle’s high point. This is a bullish indicator.
When the opening and closing position are nearly exactly in the same location and roughly between the daily high and low, we have the Long Legged Doji. This is presented on the right.
With a Long legged Doji, it indicates that there is strong pushes from both the bulls and the bears. When there is a procession of Dojis in a pattern, there is not much to be gleaned with confidence.
However, when a Doji appears after a Candle Stick with a proper body, this can be a significant indicator of a change in buying / selling pressure.
This can either be a green or red Candle Stick and is formed when the body is near the top of the candle and is far above the lower tail. As a rule of thumb, the lower tail should be about 3 times the length of the body.
This could be considered a bearish pattern when in an uptrend.
Hammers & Shooting Star
There are three Hammer variants. These are the standard Hammer, the Inverted Red Hammer and the inverted Green Hammer. These are presented below
The Standard Hammer is on the left. This indicator usually consist of a small body either red or green near the top of Candle Stick. It will usually have no upper tail but a longer lower tail. It is considered a bullish indicator in a downtrend. It is sometimes also termed a “Shaven Head”.
In the middle and right we have the inverted Green and Red hammer. These are merely the inverse of the standard hammer. The inverted red hammer is considered a bottom reversal signal. This also may take on the name of a Shaven bottom.
Another interesting variant of the hammer is the shooting star. This is essentially an inverted hammer but with a much smaller body. This can either be a red or a green candle and is a bearish indicator in an uptrend.
Long Lower and Upper Shadows
When a long shadow is formed, the upper or lower portion of the wick is usually 2-3 times the length of the total range of the candle. This differs from a hammer or hanging man as there may be some of the wick that is visible.
Taking a look at the above images, on the left we have the long upper shadow candle. This can be either a red or green Candle Stick and can be identified with the Candle Stick wick positioned above the body.
This can either be a red or green candle and is normally seen as bearish signal when observed near resistance levels.
On the right, we have the long lower shadow where the candle is formed with a wick that is below the body. This can be either a green or red candle and is considered a bullish signal when formed near support levels.
Marubozu & Spinning Top
A Marabozu is formed when there are virtually no tails. This is because the open and close were near the max and min for the day. This can either be a red or a green Marubozu.
Taking a look at the image to the right, one can see the Marubozu is merely a candle body and has no tails. This candle is indicative of a continuation pattern. This means that the current trend is most likely to continue.
In the candle to the left, we have the spinning top which is another continuation candle. This is either a red or green candle with a small body towards the middle of the candle. The wicks are usually quite short in comparison to many of the other candles.
A spinning top also shows that neither the buyers nor the sellers could gain an upper hand and the close was near the open over the time period. Depending on the preceding candle, a spinning top can point at a number of things.