Complete Guide to 48 Candlestick Patterns | Basic Course for Newbies in Investment

What is a Candlestick?

Candlestick (candle chart) is a method developed in Japan during the Edo period to record the price fluctuations of rice. It was later introduced to stock price chart analysis and is now widely used throughout Southeast Asia. Its greatest feature is that it is visually easy to understand and allows for a quick grasp of the market's psychological state.

Candlestick 48 Patterns Structure

Candlesticks are broadly classified into 24 types of bullish candlesticks and 24 types of bearish candlesticks.

Bullish Candlestick (indicating an uptrend): There are four types: small bullish candlestick, medium bullish candlestick, large bullish candlestick, and bullish doji star, each further divided into six patterns based on the size of the body and the length of the upper and lower shadows.

• A large body = Strong buying pressure = Likely to rise in the latter half of the session
• Long lower shadow = Strong support at lower price = Possibility of continuation of upward trend
• Long upper shadow = Strong selling pressure = Watch for downside risk

Bearish Candle (indicates a decline): There are four types including small bearish candles, medium bearish candles, large bearish candles, and bearish doji stars, forming a total of six patterns.

• A large body = Strong selling pressure = Likely to decline in the latter session
• Long lower shadow = There is buying support = Possibility of a rebound
• Long upper shadow = Strong selling pressure = Signal for further decline

5 Candlestick Combinations You Can Use in Real Combat

1. Morning Star

Reversal signals that appear at the bottom of a downtrend.

• Day 1: A long bearish candlestick with strong selling pressure appears.
• Day 2: Gaps down with a doji or hammer pattern. Positioned away from the previous day's bearish candlestick.
• Day 3: A strong bullish long candlestick appears, and buying returns.

A situation where the possibility of the downtrend ending is high. It is worth assessing in combination with trading volume.

2. Evening Star

Reversal signal within an uptrend. It is the inverse pattern of the Morning Star.

• Day 1: Long bullish candlestick indicating continued upward movement
• Day 2: Gapped up and formed a candlestick or hammer pattern
• Day 3: Long bearish candlestick with strong selling pressure

This is a good opportunity for selling or taking profits. Especially if it is accompanied by high trading volume, the reliability increases.

3. Red Three Soldiers

Simple and practical upward signal.

• The closing price has been higher than the previous day for three consecutive days.
• The daily opening price is within the previous day's body.
• The closing price is at or near the day's high.

It often appears frequently and tends to rise in the later session. However, it is necessary to consider the market environment rather than judging mechanically.

4. Three Crows (Sanwagurasu)

The exact opposite pattern of the red three soldiers. It is a warning signal within an uptrend.

• Long bearish candlestick for three consecutive days
• The closing price of each bearish candlestick is lower than the previous day's low.
• The daily opening price is within the previous day's body.
• The closing price is at or near the day's low.

This pattern suggests a ceiling area and is likely to lead to a subsequent decline.

5. Twin Gap Up Down

An important signal indicating the decline of market momentum.

• Day 1: Long bullish candlestick indicating the continuation of an upward trend
• Day 2: After a gap up opening, the closing price formed a bearish candle (upper gap remains).
• Day 3: After another gap up, the closing price was a bearish candle (engulfing the previous day's bearish candle).

For two consecutive days, the upward momentum has failed, and the bullish strength is slowing down. This is a situation where the risk of a reversal island is increasing. It may be time to consider taking profits or reducing positions.

Important Notes

Candlestick analysis is a powerful tool, but it is insufficient on its own. Always keep the following in mind:

• Confirmation of trading volume
• Macro trend assessment
• Analysis across multiple timeframes
• Overall market sentiment

The key to success is not just to judge by the shape of the chart, but to read the market psychology behind it.