Candlestick Patterns were originally used for tracking the prices of rice in Japan. Since then, candlestick patterns have been used for stocks, gold, and even forex. The press would often use line charts or if you were lucky, the high, low and close. A candlestick chart includes the high and low, but also the open and close. Furthermore, it will create an opened or closed box connecting the open and close. The tail above the box shows the high, the tail below shows the low. If the price closed higher than it opened, the body will be empty (white or green.) If the price closed lower than the open, then the body will be filled in (black or red.)
This gives a much better understanding of how the security performed for the period. You can quickly see if the price was up (green) or down for the day (red.) If it went up or down a lot, the body will be a long box. If it closed near or at the open, the body will be flat and look more like a horizontal line. Additionally, the tail shows how wild a price swing there was for the period. If the tail is short, you know it had a tight trading range, and was probably a result of indecision, people not knowing if they should buy or sell. If the tail is long, then there was a wild price fluctuation probably a result of good or bad news or earnings.
As I was researching Candlestick Chart Patterns to improve my own trading, I found that there really weren’t many resources out there, despite it being quite an old technique. To help improve my own understanding, I created an app that I could go through while sitting in a waiting room, or otherwise killing time, and take a quiz to see how well I remembered them.
This has really helped me spot reversal patterns. The hammer candlestick pattern, inverted hammer and doji pattern are vital in assisting you to spot these reversals, but there are other continuation and confirmation candlestick chart patterns to know as well, like the bearish engulfing pattern
To use the app, first go through all the bullish candlestick patterns and then bearish candlestick patterns to familiarize yourself with each. You can select the bull or bear icon, and then tap the plus/minus to iterate through the images. It will tell you the type of pattern it is (like Bearish Reversal.)
Quiz Mode will show the pattern, and you have to select the correct option from 4 possibilities. If you are incorrect, it will show the correct one in green.
Additionally, 50+ patterns are available to peruse on the Apple Watch as a handy reference.