Without going in to its history just lets begin with it and learn how you can get benefit out of it.

Candlestick charts display the open, high, low, and close of an instrument and shade the “candle” portion white if the close of the period is greater than the open of the period, and black if the close for the period is less than the open. The high and the low of the period are then connected by a thin line which is referred to as the wick.

These sticks gives the complete picture of the battle between buyers and sellers during the market session.

And also shows who were more dominant during the entire day.

Below is an example.

Certain formations of candle sticks are good indicators of Trend Reversal.

For Example a Spinning Top and a Doji formation denotes that the trend is most likely to change,

Similarly a Doji formation can help in confirming a change in Trend.

Bullish Engulfing Pattern and Bearish Engulfing Pattern.

These patterns are nothing but combinations of 2 different candle sticks at some special location.

Say the market is in Down Trend and today’s stick was white in color (Buyers were dominant) and if this white stick is Engulfing the previous stick, that indicates a change in trend. Or in simple words we can say that since it was a downtrend the sellers were active till date and today Buyer came in and bought all the shares from the sellers and the demand for that particular stock has increased.

Hammer and Hanging Man

Hammer is also a trend reversal pattern which is found in a downtrend.

Its long lower wick indicates that there was heavy selling pressure but later Buyers came in and made the stock close above its opening price.

It always not necessary that closing will be above open price but still if its above the Bulls are more active and the chances are more for the beginning of uptrend.

Hanging Man

Its just the opposite of a Hammer and is found in a Uptrend.

IMPORTANT LINE -: All these Trend Reversal Patterns Must be Confirmed With the Volumes

1. Line Chart – Shows least amount of data.

The dots of lines are nothing but the closing price in the particular time period. So for example if you look at a daily chart. The dots of line shows the closing price of that particular stock or financial instrument on a daily basis. Well i suggest not to use it as it doesn’t give us a valuable information from a traders perspective.

2. OHLC – Also known as ‘Open – High – Low – Close’ Chart. Known as OHLC as it gives details about Open – High – Low and Closing Price of a stock. It very informative. Description (On a daily Chart) :

• Left bar Represents Price At which it Opened on that particular date.
• Right bar represents price at which it Closed on that particular date.
• Top of the middle bar represents Day’s High.
• Bottom of the middle bar represents Day’s Low.
• If the color of the bars is green means Closed Price was above the Open Price and vice-versa.

Please see the attached picture if you have questions please let me know.

3. Candle Stick – Most frequently used, in this post i shall only discuss as how to read them we shall discuss about candle sticks as indicators in a different post.

Description is similar to OHLC, its quite easy to understand a candle stick because of its appearance.

The line above and below the body of candle are called Wicks.

If the body is Green, Closed price is Above the Open Price and if its Red the Closing Price is Below Open Price.

Have a look at the picture below and let me know if you have questions.