If you are a newcomer in the stock market world, there is a high probability you have come across the term candlestick patterns. They are one of the most powerful tools in understanding the direction of market trends and making the right trade. This article will break down the fundamental concepts in candlestick patterns and attempt to highlight the most useful ones for beginners.

What are Candlestick Patterns?

Candlestick patterns are a graphical representation of price action with respect to time in the stock market. Candlesticks depict the opening, closing, highest and lowest prices of a stock over a given period of time (5 minutes, 1 hour, 1 day, etc.)

The body of the candle reveals the gap between the opening and closing prices. The wick or otherwise known as shadow reflects the highest and lowest prices during that time.

Bullish (Green or White Candle): Price went up.

Bearish (Red or Black Candle): Price went down.

Traders can estimate the target price through these patterns with respect to their historical data.

How Are Candlestick Patterns Significant?

Investors and traders apply candlestick patterns in order to:

Recognise opportunities for buying and selling

Determine emerging market trends

Analyse the behaviour of investors

Assist with more informed entry and exit decisions

Due to their versatility, candlestick patterns are reliable for any time interval, serving the needs of day traders, swing traders, and long-term investors alike.

Most 7 Popular Basic Candlestick Patterns for Novices

1. Doji

Market uncertainty

A price range where the opening and closing prices are almost identical

An indication of reversal momentum.

2. Hammer

It has a long lower wick and a small body

Occurs at the end of a downward pattern

Considered a bullish reversal indication.

3. Shooting Star

Shows a small body and a long upper wick and is formed at the top of a price increase

Represents a bearish reversal.

4. Bullish Engulfing

A large green candle follows a small red candle

The second green candle engulfs the preceding red candle

Signifies strong bullish movement

5. Bearish Engulfing

Follows a small green candle with a large red candle

Which signals a bearish reversal.

6. Morning Star

A candlestick pattern made of three candles

Shifts the market from a downward trend into an upward trend.

7. Evening Star

Signals a reversal of the downtrend after preceding bullish candles.

How to Effectively Utilise These Candlestick Patterns

Using only patterns will not yield better results. Incorporate them with technical indicators like RSI, Moving Averages or Volume.

Examine the movement of the price. Patterns yield better results in conjunction with a price movement direction.

It's best to trade using a demo account before tackling other accounts. Learn how to use the strategies through virtual trade before dealing with actual currency. Conclusion

Candlestick patterns are very critical for professionals engaged in stock trading. Learning to interpret these patterns can increase efficiency while lowering the associated risks. It would be best to start with the beginner patterns such as the hammer or doji, then move on to more advanced patterns