Learn Candlestick Analysis ... Just What You Have Been Looking For!

Candlestick Analysis is essentially a psychological analysis of traders' mentality at the time. For this analysis, candlestick chart pattern is used as a tool.

The Japanese candlestick chart pattern is formed from the combination of basic candles namely: decision candles, spinning tops and the doji candles.

Just as a skilled artist portray beautiful imagery on a canvas, a skilled trader can portray traders' psychology at the time on a chart with the aid from candlestick chart pattern.

As the father of the psychoanalysis Sigmund Freud suggested, we human beings are essentially driven by greed and fear.

And in the case of trading this is so true. The mere fact that traders react to this natural instincts, i.e. greed to accumulate and fear of losing makes candlestick analysis work beautifully on a day-to-day basis.

In candlestick analysis, we study combinations of chandlestick chart pattern that consists more than one candles and are categorized as followings:

Candlestick Reversal Pattern
Candlestick Continuation Pattern

CANDLESTICK REVERSAL PATTERNS

A candlestick reversal pattern indicate a reversal of the trend. In order for this candlestick chart pattern to work beautifully, the prior market trend must be identified as either bullish or bearish.

A bullish candlestick reversal pattern occurs ONLY in a downtrend. The formation of this pattern indicates that the bearish or downtrend is reversing. That being said, the bullish candlestick reversal pattern CAN NOT occur in an uptrend.

A bearish candlestick reversal pattern is the opposite of the bullish candlestick reversal pattern. It occurs ONLY in an uptrend. The formation of this bearish reversal pattern indicates that the bullish or an uptrend is reversing. That being said, the bearish candlestick reversal pattern CAN NOT occur in a downtrend.

While the Japanese literature of candlestick analysis refers to a large variety of candlestick reversal pattern, we will only focus our attention to few of the most popular and proven candlestick chart pattern in this article.

Bullish Reversals	Bearish Reversals
Bullish Engulfing Candlesticks	Bearish Engulfing Candlesticks
Morning Star	Evening Star
Tweezer Bottom	Tweezer Top

Major Reversal Patterns

Major Bullish Reversals	Major Bearish Reversals
Inverse Head and Shoulders	Head and Shoulders
Triple Bottom	Triple Top
Double Bottom	Double Top

CANDLESTICK CONTINUATION PATTERNS

Identifying a trend (bullish or bearish) and continuation of that trend plays a very significant role in candlestick analysis.

Trendlines help identify the trend direction while continuation candle pattern helps traders identify whether the existing trend is going to continue until the candlestick reversal pattern formation occurs.

Bullish Continuation	Bearish Continuation
Rising Three	Falling Three

In our context of candlestick analysis, the text book perfect candlestick chart pattern that are discussed here are formed infrequently in a real world. Some flexibility should be applied in real world candlestick formation.

Sine the candlestick analysis is a subjective notion, the details on the formation of candlestick chart pattern as explained above might change from one trader to another from their viewpoint of experience and knowledge base.