• Source: Candlestick pattern

In financial technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can help to identify repeating patterns of a particular market movement. The recognition of the pattern is subjective and programs that are used for charting have to rely on predefined rules to match the pattern. There are 42 recognized patterns that can be split into simple and complex patterns. Author Thomas Bulkowski takes an in-depth look at 103 candlestick formations, from identification guidelines and statistical analysis of their behaviour to detailed trading tactics. He makes important discoveries and statistical summaries, as well as a glossary of relevant terms and a visual index to make candlestick identification easy.




History


Some of the earliest technical trading analysis was used to track prices of rice in the 18th century. Much of the credit for candlestick charting goes to Munehisa Homma (1724–1803), a rice merchant from Sakata, Japan who traded in the Dojima Rice market in Osaka during the Tokugawa Shogunate. According to Steve Nison, however, candlestick charting came later, probably beginning after 1850.
The most famous candlestick trader is the man who invented them, Munehisa Homma. He was a Japanese rice trader who tracked price action and saw patterns developing. He published his work in The Fountain of Gold — The Three Monkey Record of Money in 1755. In today’s dollars, he made about $10 billion.




Formation of candlestick



A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency. Stock price prediction based on K-line patterns is the essence of candlestick technical analysis. However, there are some disputes on whether the K-line patterns have predictive power in academia.
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.




Simple patterns






Complex patterns






References

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