Candlestick charting, originally developed by Japanese rice merchant Homma Munehisa in the 18th century, remains the most visual and effective price action tool in modern electronic trading. Understanding candlestick geometry helps identify supply and demand imbalances before indicator lag catches up.
1. The Bullish Hammer & Inverted Hammer
A single candlestick pattern with a small upper body and a long lower shadow (at least 2x the body length) appearing at the bottom of a downtrend. It signifies strong institutional buying absorbing selling pressure.
2. Bullish & Bearish Engulfing
A two-candle reversal pattern where the body of the second candle completely swallows the body of the preceding candle, indicating an aggressive shift in market control.
3. Morning Star & Evening Star Formations
Three-candle reversal setups representing a transition from strong trend to equilibrium (doji/spinning top) followed by an explosive confirmation candle in the opposite direction.
4. Doji (Neutral, Dragonfly, and Gravestone)
A candle where the open and close are virtually identical, signaling extreme indecision and impending volatility expansion.
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