Price charts are of different types. There are Area charts, Japanese candlestick charts, Bars charts, and the Heiken Ashi chart.

The Japanese candlestick chart is the best understood and commonly used for the analysis of asset prices among the four.

Japanese candlesticks have their origin in Japan and have been widely applied in the asset market to make trading decisions.

In this post, I will show you how to make money trading with candlestick charts.

1. Candlestick Types.

Basically, there are two types of candlesticks. These are the bullish and the bearish candlesticks.

The bullish candlestick is one whose closing price is higher than the opening price as shown by the body. It is represented by a white or green color on the price chart.

 

The bearish candlestick is one whose closing price is lower than the opening price as represented by the body. It is displayed by the black or red color on the price chart.

The third candlestick is thus the Doji and has no body but only upper and lower wicks, .

It resembles a cross and the horizontal line between the upper and lower wicks represents both the opening and closing price.

2. Candlestick structure.

To even think of making money with candlestick charts, we must first understand the candlestick structure.

A body and two wicks or tails are what make up a candlestick.

One candlestick represents the price movement of an asset within the chosen time frame – a 1-minute candlestick shows how the price of an asset changed during the minute in which the candlestick formed.

• Body – talking of the candlestick body, the upper end of a bullish candlestick represents the closing price while the lower end of the same candlestick represents the opening price. The upper end of a bearish candlestick represents the opening price while the lower end represents the closing price.
• Upper wick – the highest end of the upper wick of any candlestick represents the highest price reached during the time frame the candlestick formed.
• Lower wick – the lowest end of the lower wick of any candlestick represents the lowest price reached during the period when the candlestick formed.

3. Candlestick Patterns.

Formations represented by one or several candlesticks are called candlestick patterns.

They act as buy or sell signals on the asset market.

Traders in the asset market use them to successfully predict price movements thus making money.

4. Trading Candlestick Charts using Candlestick Patterns.

It is trading these candlestick patterns that will earn you money from the asset market.

Let us see the various candlestick patterns and how to make money trading them.

4.1 Bullish candlestick Patterns.

Here are some of the bullish candlestick patterns. They mostly occur near the end of downtrends to signal a bullish reversal.

Once you spot them, confirm bullish reversal with a technical indicator then enter a Buy position.

Such technical Indicators include the Moving Average Convergence and Divergence (MACD) or the Relative Strength Index (RSI).

• Bullish engulfing – formed by a short bearish candlestick completely engulfed by a larger bullish candlestick. The bullish candlestick must gap down to open below the close of the bearish candlestick, then close above the open of the same candlestick.
• Hammer – formed by one candlestick with a short body and a long lower tail. The tail must be more than twice the height of the body.
• Inverse hammer – formed by one candlestick with a short body, a long upper tail, and very short or no lower tail.
• Three white soldiers – formed by three consecutive bullish candlesticks with small wicks. From the second, each candlestick must open and close higher than the previous.
• Piercing line – formed by a long bearish candlestick followed by a long bullish candlestick. The bullish candlestick must gap down to open below the close of the bearish candlestick, then close at or above the middle of the body of the bearish candlestick.
• Morning star – formed by a long bearish candlestick followed by a gap down then a short-bodied candlestick or a doji, a gap up then, and a long bullish candlestick.

4.2 Bearish Candlestick Patterns.

Here are some of the bearish candlestick patterns.

They mostly occur near the end of uptrends to signal a bearish reversal.

If you spot any, confirm bearish reversal with a technical indicator then enter a Sell position.

Use technical indicators like the Moving Average Convergence and Divergence (MACD) or the Relative Strength Index (RSI).

• Bearish engulfing – formed by a short bullish candlestick completely engulfed by a larger bearish candlestick. The bearish candlestick must gap up to open above the close of the bullish candlestick, then close below the open of the same candlestick.
• Hanging man – formed by one candlestick with a short body and a long lower tail. The tail must be more than twice the height of the body. Its difference with the hammer is that it occurs near the end of an uptrend.
• Shooting star – formed by one candlestick with a short body, a long upper tail, and very short or no lower tail. Its difference with the inverse hammer is the uptrend.
• Three black crows – formed by three consecutive bearish candlesticks with small wicks. From the second, each candlestick must open and close lower than the previous.
• Dark cloud cover – formed by a long bullish candlestick followed by a long bearish candlestick. The bearish candlestick must gap up to open above the close of the bullish candlestick, then close at or below the middle of the body of the bullish candlestick.
• Evening star – formed by a long bullish candlestick followed by a gap up then a short-bodied candlestick or a doji, a gap down then and a long bearish candlestick.

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