How does a candle pattern help me in estimating the uptrend in the stock?

This is based on an old Japanese method of tracking the rice prices. The basic idea is to convert each days variation in a small thin rectangle which appears like a candle with a wick and by colouring the candles in colour depending upon the downward or upward trend one can visualise the trend and speculate for future. Please remember it is a statistical method and speculation is based on the past trends and patterns. Many analysts use it as it is very visual and interesting in its derivations. Each candle represents a one day variation of the prices and defined by 4 elements - opening price, closing price, high price during the day, and low price during the day. By observing certain at terns on the candle diagram one can make some investment decisions.

A black coloured candle shows that the closing price is lower than the opening price and if more number of black candles are visible across a few days duration then it is a sign that selling pressure is there in the market which is technically known as bearish trend. On the other hand a hollow or white coloured candle where the closing price is more than the opening price is a sign of rising market and indicates bull trend. The lines at both ends of a candlestick are known as shadows and the upper shadow shows the highest price for the day, and the lower shadow shows the lowest price for the day for that particular share or stock.

There are some common patterns which are used by the analysts. First is hammer or inverted hammer which helps in concluding that the bearish trend is arrested and hopefully a bullish trend will establish. Second is called Bullish Engulfing pattern in which the next day candle shape engulfs the previous day candle and is a sign of buying pressure which pushes up the prices. This also signifies the arrest of downtrend. Third is morning star which many analysts consider as a good sign. In this after a bearish trend there is a bullish trend and second bullish day is more vibrant than the first bullish day. Fourth pattern is three white soldiers which is a sign that market is going up consistently for 3 days and could go further high.

Please remember that candle pattern is a statistical analysis and is just like other technical analysis and charts and one must not be driven crazy by its manifestation. Common sense and considering the political and general market factors will always rule the investment decisions.

In the 1700s, Homma, from Japan used this method to predict the price, the supply and demand of rice. Those days the prices of rice were varying much with the emotions of the people.

These candlesticks indicate four points in trading and they are the open, close, high, and low value of a particular share on a particular day. One Candlestick will give the history of one day. The candlestick of each day will be colored based on its variation. When the candlestick is in black color means the close was lower than the open. If the body is empty means the close was higher than the open. A candlestick that is showing a candle down maybe in red color in some cases. Upwards may be represented by green instead of open,

A candlestick pattern will be of two types. Bullish patterns are one which indicates that the price may increase. The second pattern is known as bearish patterns and they indicate that the price may come down.