A candlestick shows how a share’s price moved during one period, such as one day or one hour. Candlestick patterns are shapes formed by one or a few candles that hint at what buyers and sellers are doing. This guide explains how to read a candle and covers eight patterns every Pakistan Stock Exchange (PSX) beginner should know, with the Urdu idea behind each one.
How to read a single candle
- Body: the distance between the opening and closing price. A green (or hollow) body means the price closed higher than it opened; a red (or filled) body means it closed lower.
- Wicks (shadows): the thin lines above and below the body, showing the highest and lowest prices reached.
- Long upper wick: buyers pushed the price up, but sellers pushed it back down.
- Long lower wick: sellers pushed the price down, but buyers pushed it back up.
8 candlestick patterns to know
1. Hammer
A small body near the top with a long lower wick, at least twice the body’s length, appearing after a fall. Sellers pushed the price down hard, but buyers took control by the close. It can signal a possible bounce, especially at a support level.
2. Shooting star
The opposite of a hammer: a small body near the bottom with a long upper wick, after a rise. Buyers tried to push higher but sellers rejected the move. It can warn of a pullback, especially near resistance.
3. Doji
The open and close are almost the same, so the body is a thin line. It shows indecision (bechaini): neither side won. A doji after a long move suggests the trend may be losing strength.
4. Bullish engulfing
A red candle followed by a larger green candle whose body completely covers the red one. Buyers have overpowered sellers. Strongest after a decline and at support.
5. Bearish engulfing
A green candle followed by a larger red candle whose body covers it. Sellers have taken over. Strongest after a rise and at resistance.
6. Morning star
A three-candle pattern after a fall: a long red candle, then a small candle (often a doji), then a long green candle closing well into the first candle’s body. It suggests the selling has run out.
7. Evening star
The mirror image after a rise: a long green candle, a small candle, then a long red candle. It suggests the buying has run out.
8. Marubozu
A long candle with little or no wick. A green marubozu shows buyers in control from open to close; a red one shows sellers in control. It often appears at the start of a strong move.
Context matters more than the pattern
A pattern on its own is not a buy or sell signal. It becomes meaningful when it appears in the right place:
- At a clear support or resistance level
- In line with the overall trend
- With higher-than-usual volume
- Confirmed by the next candle closing in the expected direction
Always decide your stop loss before acting on any pattern.
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This article is for education only and is not investment advice. Trading shares involves risk, including the loss of capital.