Japanese candlesticks offer a better visual perspective for predicting future market activities than bars. It has become the most widely used tool for all traders.

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:: Candlesticks are graphical representations of price movements for a given period of time. They are commonly formed by the opening, high, low, and closing prices of a financial instrument.

If the opening price is above the closing price then a filled (normally red or black) candlestick is drawn.

If the closing price is above the opening price, then normally a green or hollow candlestick (white with black outline) is shown.

The filled or hollow portion of the candle is known as the body or real body, and can be long, normal, or short depending on its proportion to the lines above or below it.

The lines above and below, known as shadows, tails, or wicks, represent the high and low price ranges within a specified time period. However, not all candlesticks have shadows.

Price Action Traders and the Candlestick:

For price action trader candlesticks and its patterns are most important tool for analyzing and understanding the market direction and mood. For understanding in details we can classify these patterns into two categories:-

a) Single Candle or Simple Patterns

b) Combination Candle or Complex Patterns (Will be published in Part II)

Simple Candlesticks Pattern:

Big Red Candle Has an unusually long black body with a wide range between high and low. Prices open near the high and close near the low. Considered a bearish pattern.

Formed when the opening price is higher than the closing price. Considered to be a bearish signal.

Big Green Candle Has an unusually long white body with a wide range between high and low of the day. Prices open near the low and close near the high. Considered a bullish pattern.

Formed when the opening price is higher than the closing price. Considered to be a bearish signal.

Doji Formed when opening and closing prices are virtually the same. The lengths of shadows can vary. If previous are bearish, after a Doji, may be ready to bullish.

Long-Legged Doji Consists of a Doji with very long upper and lower shadows. Indicates strong forces balanced in opposition. If previous are bullish, after long legged doji, may be ready to bearish.

Dragonfly Doji Formed when the opening and the closing prices are at the highest of the day. If it has a longer lower shadow it signals a more bullish trend. When appearing at market bottoms it is considered to be a reversal signal.

Gravestone Doji Formed when the opening and closing prices are at the lowest of the day. If it has a longer upper shadow it signals a bearish trend. When it appears at market top it is considered a reversal signal.

Hammer A green or red candlestick that consists of a small body near the high with little or no upper shadow and a long lower tail. Considered a bullish pattern during a downtrend.

Hanging Man A green or red candlestick that consists of a small body near the high with little or no upper shadow and a long lower tail. The lower tail should be two or three times the height of the body. Considered a bearish pattern during an uptrend.

Inverted Hammer A green or red candlestick in an upside-down hammer position.

Shooting Star A green or red candlestick that has a small body, a long upper shadow and little or no lower tail. Considered a bearish pattern in an uptrend.

Long Upper Shadow A black or white candlestick with an upper shadow that has a length of 2/3 or more of the total range of the candlestick. Normally considered a bearish signal when it appears around price resistance levels.

Long Lower Shadow A black or white candlestick is formed with a lower tail that has a length of 2/3 or more of the total range of the candlestick. Normally considered a bullish signal when it appears around price support levels.

Marubozu A long or normal candlestick (black or white) with no shadow or tail. The high and the low represent the opening and the closing prices. Considered a continuation pattern.

Spinning Top A black or white candlestick with a small body. The size of shadows can vary. Interpreted as a neutral pattern but gains importance when it is part of other formations.

Shaven Head A red or green candlestick with no upper shadow. [Compared with hammer.]

Bottom Head A red or green candlestick with no lower shadow. [Compared with hammer.]