Japanese Candlesticks: Reading Price Action & Bar Patterns

To read a chart, you must understand the anatomy of its smallest component: the single candle. Every candlestick tells a story of a specific time period (1 minute, 1 hour, 1 day, etc.) using four data points: **Open, High, Low, and Close (OHLC)**.

---

**1. THE ANATOMY OF A CANDLE**

Imagine the candle as a battlefield report.

* **The Real Body:** The solid rectangular block. This is the distance between the **Open** price and the **Close** price.
* **Green (Bullish):** The Close is higher than the Open. The bulls gained ground.
* **Red (Bearish):** The Close is lower than the Open. The bears gained ground.
* **Interpretation:** A long body means one side was in total control. A short body means the market was fighting over a tight range.

* **The Wicks (Shadows):** The thin lines extending above and below the body.
* **Upper Wick:** The High of the session. It shows how high buyers tried to push price before sellers forced them back down.
* **Lower Wick:** The Low of the session. It shows how low sellers tried to push price before buyers forced them back up.
* **Interpretation:** Wicks represent **Failure** or **Rejection**. A long upper wick is a failure of buyers. A long lower wick is a failure of sellers.

---

**2. THE STORY OF THE CANDLE (Psychology)**

Do not memorize patterns; understand the story.

**Scenario A: The Marubozu (Total Dominance)**
* **Visual:** A massive Green candle with **no wicks**.
* **The Story:** Buyers opened the market, pushed price up all day, and closed at the very highest point. Sellers were nowhere to be found.
* **Action:** This is a strong continuation signal. Do not sell against this.

**Scenario B: The Hammer (The Bear Trap)**
* **Visual:** A small Green body at the top, with a very long lower wick. Like a mallet.
* **The Story:** The session opened, and sellers immediately took control, crashing the price down (the long wick). However, before the candle closed, buyers stepped in aggressively, absorbed all the selling pressure, and pushed price all the way back up to close near the high.
* **Action:** This is a **Reversal** signal. The bears fired their best shot and missed. Momentum has shifted.

**Scenario C: The Doji (The Standoff)**
* **Visual:** A cross. No body. The Open and Close are the same price.
* **The Story:** Buyers pushed up, Sellers pushed down, but in the end, nobody won. The market is in equilibrium.
* **Action:** Indecision often precedes a breakout. If you see a Doji after a long uptrend, it suggests the buyers are tired. A reversal may be imminent.

---

**3. KEY SINGLE-CANDLE PATTERNS**

These are the 'Words' of the market language.

**The Pin Bar (Hammer / Shooting Star)**
* **Hammer:** (Bullish) Long lower wick, small body. Found at **Support**.
* **Shooting Star:** (Bearish) Long upper wick, small body. Found at **Resistance**.
* **Institutional Insight:** We love Pin Bars. They represent a 'Liquidity Grab.' The long wick usually means the market dipped down to hit the Stop Losses of retail traders, found liquidity, and then rocketed back up.

**The Spinning Top**
* **Visual:** Small body centered between two medium wicks.
* **Meaning:** Neutrality. The market is waiting for news or a catalyst. Do not trade spinning tops; wait for the next candle to confirm direction.

---

**4. KEY DUAL-CANDLE PATTERNS**

Sometimes a story takes two candles to tell.

**The Engulfing Pattern (Momentum Shift)**
* **Bullish Engulfing:** A small Red candle followed by a massive Green candle that completely 'eats' (engulfs) the previous body.
* **Psychology:** The sellers were in control yesterday, but today the buyers overwhelmed them completely. This is one of the strongest reversal signals in trading.

**The Tweezer Tops/Bottoms**
* **Visual:** Two candles with identical highs (Tweezer Top) or identical lows (Tweezer Bottom).
* **Psychology:** It represents a 'Double Bottom' on a lower timeframe. Price tested a level twice and failed to break it twice. The floor is solid.

---

**5. CONTEXT IS KING**

Here is where 95% of YouTube tutorials fail you. They tell you: "See a Hammer? Buy!"

**NO.**

A Hammer pattern is only valid if it appears in the right **Location**.

* **Scenario 1:** Price is trending up strongly. In the middle of the trend, a Hammer appears.
* **Verdict:** Ignore it. It's just volatility.
* **Scenario 2:** Price has been falling for 3 days. It hits a major Weekly Support Level (e.g., 1.0500). At this exact level, a Hammer prints.
* **Verdict:** **BUY.** The context (Support) + The Trigger (Hammer) = High Probability Trade.

**Rule:** A candlestick pattern is not a strategy; it is a **Trigger**. You need a Map (Structure) before you pull the Trigger.

---

**6. TIMEFRAMES MATTER**

A Hammer on a 1-Minute chart is meaningless noise. A Hammer on a Daily chart is a major market event.

* **The Golden Rule:** The higher the timeframe, the more reliable the signal.
* **Institutional Approach:** We analyze patterns on the Daily and 4-Hour charts. We rarely trust signals on anything lower than the 15-Minute chart unless we are scalping during high volume.

---

**CONCLUSION**

Candlesticks are the footprints of money. A long wick is not just a line; it is a visual representation of millions of dollars being rejected at a specific price. By learning to read these wicks and bodies, you are learning to read the fear and greed of your competitors.

In the next lesson, we will expand our view from single candles to the broader market structure. We will learn how to connect these candles to draw **Trendlines & Channels**, allowing us to identify the direction of the river so we can swim with the current, not against it.