🔹 1. Introduction: Why Understanding Candlestick Patterns & Chart Analysis is a Game-Changer
Imagine you’re watching a cricket match.
Now, if you only look at the scorecard — something like “Virat Kohli: 45 runs, Rohit Sharma: 78 runs” — you’ll get the numbers, but not the real story of the match.
But if you watch the highlights or the match timeline, where you can see when the run rate picked up, when wickets fell, or when a big over changed the game — that gives you the real feel, right?
That’s exactly what candlestick charts do in trading.
Anyone can look at the open, close, high, and low prices — they’re just numbers.
But candlestick patterns visually tell you the story behind those numbers — the fight between buyers and sellers, the turning points in price, and the possible future direction.
🕯️ Let’s Understand with a Simple Example:
Let’s say you’re watching the stock of Reliance Industries, and it’s hovering around ₹2500.
Suddenly, a “Hammer” candlestick forms on the chart — it has a long lower wick and a small body at the top.
What does that mean? It means sellers tried to push the price down, but buyers stepped in strongly and pulled the price back up before the candle closed.
This is a sign of buying pressure — and a possible reversal upward.Now, if you just looked at the closing price, you would’ve missed this battle.
But the candlestick shows you the shift in momentum — and gives you a smart entry signal.
📈 Visual Analysis = Smarter Trading Decisions
👉 Numbers only tell you what happened
👉 Candlestick charts show you why it happened — and what might happen next If you trade only by looking at prices, you’re basically guessing.
But if you understand candlestick psychology — the story of buyers vs. sellers — you start making decisions like a pro trader.
So bro, learning candlestick patterns and chart analysis isn’t just optional — it’s essential if you want to succeed in stock trading, especially in intraday.
🔹 2. What is a Candlestick Chart?
If you want to read the market like a professional, one of the first tools you must master is the Candlestick Chart.
It looks simple — just a bunch of green and red candles — but each candle holds powerful information about price movement, emotions, and market psychology.
Let’s break it down in the most friendly and easy way possible.
🏯 History and Origin: Japanese Candlestick Techniques
Did you know candlestick charts are over 300 years old?
They were first developed by a Japanese rice trader named Munehisa Homma in the 1700s. He used this technique to predict rice prices and became one of the richest traders in history.
His belief?
“Market prices are influenced not only by supply and demand, but also by the emotions of traders.”
So, candlesticks were born — to visually capture both price and psychology on a chart.Later, Western traders like Steve Nison introduced these Japanese candlestick techniques to the rest of the world through his famous book:
📘 Japanese Candlestick Charting Techniques (a must-read for serious traders).
🧱 Components of a Candlestick: Open, High, Low, Close (OHLC)
Each candle represents price movement within a specific time frame — for example, 1 minute, 5 minutes, 15 minutes , 30 minutes , 1 hour, or even 1 day.
Let’s understand its parts:
🟩 For a Bullish Candle (Price went up during the time frame):
- Open: Where the price started
- Close: Where the price ended (higher than open)
- High: Highest price reached during that time
- Low: Lowest price reached during that time
- The body is GREEN (or white), showing upward movement.
🟥 For a Bearish Candle (Price went down during the time frame):
- Open: Where the price started
- Close: Where the price ended (lower than open)
- High: Highest point it touched
- Low: Lowest point it fell to
- The body is RED (or black), showing downward movement.
🔥 Real-Life Analogy: Candle as a Story
Think of each candle like a mini-drama:
- The open is the first scene,
- The high/low is the action and conflict,
- The close is how the story ended.
If the candle closed higher than it opened — buyers won.
If it closed lower — sellers won.
Once you learn to “read” these stories, you can predict the next move, just like how you sense a twist coming in your favorite web series!
📊 Why It Matters in Trading
A candlestick doesn’t just tell you price — it tells you momentum, emotion, and market pressure.
Mastering candlesticks helps you:
- Time your entry and exit better
- Avoid emotional trades
- Spot early signs of reversals or breakouts
Read Also Struggling with Financial Statements? Here’s the Simplest Way to Decode Them All!
🔹 3. Types of Candlestick Patterns: Explained with Examples
Candlestick patterns are like signals or hints from the market. They tell you what buyers and sellers are doing — and what might happen next.
There are 2 main types of candlestick patterns:
- Bullish Patterns (Signal that price may go up)
- Bearish Patterns (Signal that price may go down)
Let’s break each one down with examples so you can recognize them easily while trading.
🔸 3.1. Bullish Candlestick Patterns
These patterns suggest that buyers are gaining control, and the price might rise soon.
✅ 1. Morning Star Pattern
Structure:
- 1st Candle: Long bearish (red) candle
- 2nd Candle: Small candle (can be red or green) – shows indecision
- 3rd Candle: Long bullish (green) candle – shows strong buying pressure
Meaning:
This pattern shows that after a downtrend, the selling is weakening and buyers are coming in strong. It’s a classic trend reversal signal.
Real Example:
If a stock like Tata Motors is falling for 3 days and suddenly this pattern appears, it could mean the downtrend is over — and price may start moving up.
✅ 2. Bullish Engulfing Pattern
Structure:
- 1st Candle: Small red candle
- 2nd Candle: Big green candle that completely covers (engulfs) the red candle
Meaning:
Buyers have entered aggressively and taken control from the sellers. This pattern often appears at the bottom of a downtrend and signals a strong bullish move ahead.
Tip: Higher volume during the engulfing candle adds more strength to the signal.
✅ 3. Hammer Pattern
🔨 (Looks like a hammer)
Structure:
- Small body near the top
- Long lower wick (shadow)
- Little to no upper wick
Meaning:
Sellers pushed the price down during the session, but buyers fought back and closed the price near the opening. It shows rejection of lower prices and a possible upward reversal.
Common in intraday trading for spotting bottom reversals.
✅ 4. Piercing Line Pattern
Structure:
- 1st Candle: Long red
- 2nd Candle: Opens lower but closes above the midpoint of the 1st candle
Meaning:
It signals a shift in momentum from sellers to buyers — similar to a bullish engulfing but slightly weaker.
🔸 3.2. Bearish Candlestick Patterns
These patterns suggest that sellers are taking over, and price may fall soon.
❌ 1. Evening Star Pattern
Structure:
- 1st Candle: Long bullish (green)
- 2nd Candle: Small candle (indecision)
- 3rd Candle: Long bearish (red) candle
Meaning:
This is a trend reversal pattern seen at the top of an uptrend. It shows that buying is weakening, and sellers are stepping in.
Tip: Confirm with volume drop and other indicators like RSI or MACD.
❌ 2. Bearish Engulfing Pattern
Structure:
- 1st Candle: Small green
- 2nd Candle: Big red candle that covers the green one entirely
Meaning:
Buyers tried to push higher but were overpowered by heavy selling. A clear sign of trend reversal from bullish to bearish.
Example:
If this pattern appears after a few green candles in Infosys, it might be a signal to book profits or short.
❌ 3. Hanging Man Pattern
Structure:
- Small body at the top
- Long lower wick
- Appears after an uptrend
Meaning:
Even though it looks like a Hammer, it shows buyer exhaustion at the top. Sellers are starting to push down — possible sign of a fall.
❌ 4. Dark Cloud Cover
Structure:
- 1st Candle: Long green
- 2nd Candle: Opens higher, closes below the midpoint of 1st candle
Meaning:
Shows a bearish reversal — sellers are taking charge just after a bullish move.
🔍 Bonus Tip:
These patterns work even better when you:
- Use them with volume confirmation
- Combine with support/resistance zones
- Add indicators like RSI, MACD, VWAP, etc.