Candlestick patterns for beginners

Reading one candle

Each candle covers one trading day. The thick part is the body. It runs from the opening price to the closing price.

A green body means the stock closed higher than it opened. A red body means it closed lower. The thin lines above and below the body are wicks. They show the day's high and low.

Patterns worth knowing

There are dozens of named patterns. Beginners only need a few to start.

• Doji: open and close almost equal.
• Hammer: small body, long lower wick, after a fall.
• Shooting star: small body, long upper wick, after a rise.
• Engulfing: one body fully covers the day before.
• Evening star: three candles that can mark a top.

Engulfing patterns

A bullish engulfing pattern is a green body that fully covers the red body of the day before. It shows buyers took over from sellers in one session. A bearish engulfing pattern is the reverse: a red body that covers the green body before it.

Morning star and evening star

These are three-candle patterns. An evening star starts with a strong green candle, then a small candle, then a red candle that closes well into the first body. It can mark a top. A morning star is the mirror image after a fall.

Indecision candles

A doji or a spinning top has a small body. The price moved during the day but ended close to where it started.

These candles show that buyers and sellers were evenly matched. They matter most after a long move, when they can show the move is tiring.

Why context matters

A pattern means little on its own. A hammer after a long fall, at a support level, on high volume, says much more than a hammer in the middle of a range.

Patterns also fail often. Many traders wait for the next candle to confirm, and use patterns together with levels and the trend.

Candles in NEPSE

NEPSE trades from Sunday to Thursday, 11:00 to 15:00, so each daily candle covers that four-hour session. A single stock can move at most 15% up or down in a day, which limits how tall one candle can get.