📊 Module 2: Candlestick Basics

⏱️ Duration: ~1 hour

🎯 Objective: Understand the structure of candlesticks, identify basic types, and learn key candlestick patterns to predict market movement.

🔥 What is a Candlestick?

A candlestick is a visual representation of price movement during a specific time frame. Each candle tells a story of the battle between buyers and sellers.

    • Body: Difference between open and close

    • Wicks/Shadows: Highs and lows of the session

    • Color: 🟩 Green (Bullish), 🔴 Red (Bearish)

                     

🧠 Important: Each single candle gives insight into market sentiment at a specific time.

 

🕯️ Single Candlestick Types – Explained

🔨 1. Hammer (Bullish Reversal)

  • Structure:

    • Small body near the top.

    • Long lower wick (at least 2x the body).

    • Little or no upper wick.

  • Appears: After a downtrend.

  • Meaning: Sellers pushed the price down, but buyers came in strong and closed near the top — potential reversal signal.

  • Color: Green is stronger, but red is also valid.

  • Confirmation: Next candle should close higher.

🪞 2. Inverted Hammer (Bullish Reversal)

  • Structure:

    • Small body near the bottom.

    • Long upper wick, little or no lower wick.

  • Appears: After a downtrend.

  • Meaning: Buyers tried to push price up. Sellers resisted but couldn’t maintain dominance. Possible reversal.

  • Confirmation: Needs a bullish candle after it.

🌠 3. Shooting Star (Bearish Reversal)

  • Structure:

    • Small body near the bottom.

    • Long upper wick.

  • Appears: After an uptrend.

  • Meaning: Buyers pushed price higher, but sellers took over — momentum is weakening.

  • Confirmation: Next candle should be bearish.

⚖️ 4. Doji (Indecision)

  • Structure:

    • Open ≈ Close (very small or no body).

    • Wicks on both sides.

  • Appears: At tops, bottoms, or inside trends.

  • Meaning: Balance between buyers and sellers — could signal reversal or continuation depending on context.

  • Types: Standard Doji, Long-legged, Dragonfly (bullish), Gravestone (bearish).

  • Confirmation: Always wait for the next candle.

🍡 5. Spinning Top (Indecision)

  • Structure:

    • Small body with upper and lower wicks.

  • Appears: In trends or consolidations.

  • Meaning: Tug-of-war between bulls and bears — possible pause or reversal.

  • Note: Needs confirmation.

📉 6. Bearish Marubozu

  • Structure:

    • Full red body.

    • No wicks (or very tiny).

  • Appears: At trend starts or after breakouts.

  • Meaning: Pure selling pressure — very strong bearish signal.

  • Use: Signals strong bearish momentum.

📈 7. Bullish Marubozu

  • Structure:

    • Full green body.

    • No wicks (or very tiny).

  • Appears: During or after bullish breakouts.

  • Meaning: Strong buying pressure — strong bullish signal.

  • Use: Indicates continuation or breakout confirmation.

Great! Let’s begin with Bullish Reversal Candlestick Patterns — these are the ones that suggest the market may shift from a downtrend to an uptrend.

 

✅ Bullish Reversal Candlestick Patterns – Explained One by One

🟩 1. Bullish Engulfing

  • Structure:

    • First candle: Small bearish (red).

    • Second candle: Large bullish (green) that completely engulfs the first one.

  • Condition: Appears after a downtrend.

  • Meaning: Buyers have taken control after a period of selling.

  • Confirmation Tip: Higher volume on the bullish candle strengthens the signal.

  • Use: Can be an entry point for long positions.

🌅 2. Morning Star

  • Structure:

    • First: Strong bearish candle.

    • Second: Small-bodied candle (can be Doji or Spinning Top).

    • Third: Strong bullish candle closing above the midpoint of the first.

  • Condition: Forms after a downtrend.

  • Meaning: Bearish pressure is weakening and buyers are stepping in.

  • Use: Classic bullish reversal — especially reliable on daily charts.

🌤 3. Piercing Line

  • Structure:

    • First: Long bearish candle.

    • Second: Bullish candle that opens below the low of the first, and closes above the midpoint of the first.

  • Condition: After a downtrend.

  • Meaning: Strong buying interest after early bearish pressure.

  • Use: Entry signal with confirmation (e.g., next green candle or high volume).

📈 4. Three White Soldiers

  • Structure:

    • Three consecutive bullish candles, each closing higher than the last.

    • Each opens within the previous body and closes near the top.

  • Condition: After a downtrend or consolidation.

  • Meaning: Sustained buying pressure and trend reversal.

  • Use: Strong bullish signal — often indicates trend continuation as well.

ish Reversal Candlestick Patterns — these patterns indicate that a bullish trend might be coming to an end, and sellers could take control.

❌ Bearish Reversal Candlestick Patterns – Explained One by One

🔴 1. Bearish Engulfing

  • Structure:

    • First candle: Small bullish (green).

    • Second candle: Large bearish (red) that completely engulfs the first.

  • Condition: Appears after an uptrend.

  • Meaning: Buyers lost momentum and sellers are taking over.

  • Confirmation Tip: Higher volume on the red candle adds reliability.

  • Use: Common signal to exit longs or consider short entries.

🌇 2. Evening Star

  • Structure:

    • First: Strong bullish candle.

    • Second: Small-bodied candle (Doji or Spinning Top).

    • Third: Strong bearish candle closing below the midpoint of the first.

  • Condition: Appears at the top of an uptrend.

  • Meaning: Buying pressure is fading; sellers are gaining ground.

  • Use: Reliable bearish reversal, especially on higher timeframes.

☁️ 3. Dark Cloud Cover

  • Structure:

    • First: Strong bullish candle.

    • Second: Bearish candle that opens above previous high, but closes below the midpoint of the first.

  • Condition: Forms in an uptrend.

  • Meaning: Bullish momentum is weakening; bears entering.

  • Use: Needs confirmation but often signals trend change.

🐦 4. Three Black Crows

  • Structure:

    • Three consecutive bearish candles, each opening within the previous body and closing lower.

  • Condition: After an uptrend or sideways market.

  • Meaning: Steady selling pressure and likely trend reversal.

  • Use: Strong bearish signal — best when volume increases across the candles.

 

♻️ Continuation Candlestick Patterns – 

🚀 1. Rising Three Methods (Bullish Continuation)

  • Structure:

    • First: Strong bullish (green) candle.

    • Middle: 2–4 small bearish (red) candles that stay within the range of the first.

    • Last: Strong bullish candle that closes above the first candle’s high.

  • Condition: In an uptrend.

  • Meaning: A healthy consolidation before bulls regain strength.

  • Use: Entry point to ride the ongoing uptrend after confirmation.

🧨 2. Falling Three Methods (Bearish Continuation)

  • Structure:

    • First: Strong bearish (red) candle.

    • Middle: 2–4 small bullish (green) candles within the range of the first.

    • Last: Strong bearish candle that closes below the first candle’s low.

  • Condition: In a downtrend.

  • Meaning: Temporary pullback by bulls, but bears remain in control.

  • Use: Great for continuing a short trade or confirming bearish trend.

🧠 Key Notes on Continuation Patterns

  • These patterns show brief pauses, not reversals.

  • Best confirmed by:

    • 🔍 Volume analysis (e.g., lower volume during the middle candles).

    • 📉 Trendlines or Moving Averages.

  • Avoid using these in sideways or choppy markets — they work best in strong trends.

 

🔍 Single Candles vs Patterns

Single Candles show momentary reactions (e.g., Hammer, Doji) while Candlestick Patterns (like Morning Star or Engulfing) involve combinations that reveal broader market psychology.

🕇 Basic Candlestick Types

Name Description Example
Bullish Candle Close > Open — Indicates buying pressure

Bearish Candle Close < Open — Indicates selling pressure

Doji Open ≈ Close — Signals indecision
Hammer Long lower wick — Bullish reversal after downtrend
Inverted Hammer  Long upper wick — Bullish reversal signal
Shooting Star Long upper wick — Bearish signal after uptrend
Spinning Top  Small body — Indecision
Marubozu Full body, no wicks — Strong momentum

📈 Candlestick Patterns

                   ✅ Bullish Reversal Patterns

    • Bullish Engulfing — Big bullish candle engulfs small bearish

    • Piercing Line — Bullish closes above midpoint of previous bear

    • Morning Star — Bear → Doji → Bull — Strong reversal

    • Three White Soldiers — Three bullish candles

                 ❌ Bearish Reversal Patterns

    • Bearish Engulfing — Big bear candle engulfs small bull

    • Dark Cloud Cover — Bear closes below midpoint of previous bull

    • Evening Star — Bull → Doji → Bear — Strong reversal

    • Three Black Crows — Three bearish candles

               ♻️ Continuation Patterns

    • Rising Three Methods — Bull → small bears → another bull

    • Falling Three Methods — Bear → small bulls → another bear

 

🧠 Example Case Study

Imagine BTC is in a downtrend. You spot a hammer candle with high volume at a support zone. The next candle confirms reversal. This can signal a good long opportunity.

📚 Homework & Task

    • Identify: Hammer, Doji, Engulfing, Morning/Evening Star

    • Take screenshots, mark patterns, and upload in class group

    • Make flashcards for each pattern and quiz yourself

    • Try placing demo trades on paper account

⏰ Time Breakdown (1 Hour)

    • Explanation of Candle Structure – 10 mins

    • Types of Candles – 10 mins

    • Reversal/Continuation Patterns – 15 mins

    • Single vs Pattern Analysis – 5 mins

    • Examples + Case Study – 10 mins

    • Tasks/Homework – 10 mins

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