Candlesticks

Japanese candlesticks are one of the most useful tools for understanding the market We will present the most useful and reliable candlestick patterns:

Doji - A bodiless candlestick that is created when the opening rate is equal to the closing rate. It is most useful after long upward or downward trends, since it reflects the indecisiveness of the trend's future direction.The Doji's appearance serves as a warning signal of an upcoming Trend Reversal. If the market does change its trend after the Doji's appearance, one must react immediately according to the current position.

The Hammer is identified by a short body at the upper end of the Candlestick. It also has a shadow that is at least twice as long as the body. The hammer is useful after long downward moves, since it predicts the coming end of the downward trend. When the Hammer appears at the end of a downward trend, it serves as a Buy Signal.

The Shooting Star is the opposite of The Hammer. It is defined by a short body at the bottom of the candlestick. The Shooting Star's shadow is at least twice as long as the body. The shooting star is useful after long upward moves, since it predicts the coming end of the upward trend. When the Shooting Star appears at the end of an upward trend, it serves as a Sell Signal.

The Engulfing Pattern is comprised of a number of candlesticks.
The last candlestick in the pattern is the biggest one, Its body covers all the candlesticks that appear before him in the pattern. The more candlesticks the pattern includes, the clearer and more significant it becomes. When the Engulfing Pattern appears at the end of an upward trend with its last candle red, it serves as a Sell Signal. When the Engulfing Pattern appears at the end of a downward trend with its last candle green, it serves as a Buy Signal.

Thrust Candlestick

In conclusion - All patterns displayed were reversal patterns, i.e. warning signals of a coming change of trend. In order to verify the trend reversal, we must wait for the appearance of a Thrust Candlestick - a candlestick that strengthens the trend reversal estimation. For example - A Doji appears at the end of an upward trend, followed by a red candlestick whose low point is lower than the Doji's low point.This candlestick is the thrust candlestick, and its appearance reassures that a downward trend approaches.