HOLLOW POINT TRADING
What Are Candlestick Charts?
Candlestick charts are one of the most powerful visual tools in technical analysis. Each candlestick represents price movement over a specific time period, displaying four critical data points: the opening price, closing price, highest price, and lowest price. This comprehensive view allows traders to quickly assess market sentiment and identify potential trading opportunities.
Unlike simple line charts that only show closing prices, candlestick charts reveal the complete story of each trading session, making it easier to understand the ongoing battle between buyers and sellers.
Key Takeaways
- Candlesticks display four data points: Open, High, Low, and Close (OHLC)
- Green/white candles indicate price went UP (bullish); Red/black candles indicate price went DOWN (bearish)
- The body shows the range between open and close; shadows show the high and low extremes
- Patterns like Doji, Hammer, and Engulfing can signal potential reversals
- Always confirm candlestick signals with volume and other indicators
Anatomy of a Candlestick
Every candlestick tells a story about the battle between buyers and sellers during that time period. Understanding the components helps you read price action like a professional.
The Four Essential Data Points
- Open: The first traded price when the period began
- High: The maximum price reached during the period
- Low: The minimum price reached during the period
- Close: The final traded price when the period ended
Reading Bullish vs Bearish Candles
Bullish (Green/White)
The close is HIGHER than the open. Buyers dominated this session, pushing prices up. The body shows the range between open (bottom) and close (top).
Bearish (Red/Black)
The close is LOWER than the open. Sellers dominated this session, pushing prices down. The body shows the range between open (top) and close (bottom).
Key Single-Candle Patterns
Doji
Open and close are nearly identical, creating a cross or plus sign shape. This signals indecision—neither buyers nor sellers won. Often appears at potential turning points.
Trading implication: Watch for confirmation in the following candles. A doji after an uptrend may signal reversal; after a downtrend, potential bottom.
Hammer / Hanging Man
Small body at the top with a long lower shadow (at least 2x the body). No or very small upper shadow.
Hammer (bullish): Appears after a downtrend. Shows sellers pushed price down but buyers recovered—potential reversal up.
Hanging Man (bearish): Same shape but appears after an uptrend. Warning that sellers are entering—potential reversal down.
Engulfing Patterns
Bullish Engulfing: A large green candle completely "engulfs" the previous red candle's body. Strong reversal signal after downtrends.
Bearish Engulfing: A large red candle completely engulfs the previous green candle's body. Strong reversal signal after uptrends.
Morning Star / Evening Star
Morning Star (bullish): Three-candle pattern: (1) large red candle, (2) small-bodied candle that gaps down, (3) large green candle that closes above midpoint of first candle. Signals bottom reversal.
Evening Star (bearish): Opposite: (1) large green, (2) small-bodied gap up, (3) large red closing below first candle's midpoint. Signals top reversal.
What the Shadows Tell You
Shadow Analysis
- Long upper shadow: Buyers tried to push higher but sellers fought back—resistance above
- Long lower shadow: Sellers pushed down but buyers absorbed it—support below
- No shadows: Strong conviction in one direction (Marubozu)
- Equal shadows: Balanced battle, often indecision (spinning tops)
Volume Confirmation
Candlestick patterns are most reliable when confirmed by volume:
High volume + pattern: Strong conviction behind the move. More likely to follow through.
Low volume + pattern: Weak conviction. May be a false signal or need additional confirmation.
Pro tip: Reversal patterns are especially powerful when accompanied by significantly above-average volume.
Start Reading the Market
Candlestick charts transform raw price data into a visual narrative of market psychology. By learning to recognize key patterns and understanding what they reveal about buyer and seller dynamics, you can make more informed trading decisions.
Remember: successful trading combines pattern recognition with sound risk management, proper confirmation, and continuous learning.