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How to Read Candlesticks
Candlesticks。express。stock。price movements。over a set period of time （ordinarily either one day or one week）。 Each stick。will have a different shape and color （black。equals。a downtrend； white equals。an uptrend）； and each means something different。 For example； if there is。a long white box； one might surmise that the same price trend will continue and prices。will rise even higher the next day。
If a stock。experiences。selling after it opens； later rises。higher； but closes。the day at the same price as。the opening price （the very first price of the day）； one might conclude that the market is。having difficulty deciding on a direction。
In other words； each candlestick。has。a meaning and tells。a story。 There are twelve basic。types。of candlesticks。（see Figure 4。5）。 Let's look。closer at their meanings。and what their binations have to say about market direction。
The twelve types。of candlesticks。break。down into three basic。categories。
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While candlesticks。 The closing price was。higher than the opening price （Nos。 1…4 in Figure 4。5）。
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Black。candlesticks。 The opening price was。higher than the closing price （Nos。 5…8 in Figure 4。5）。
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Doji。 The opening price and the closing price were the same； forming a crossbar figure （Nos。 9…12 in Figure 4。5）。
Within these categories； there are many different shapes。 For example； a large white box with no shadows； called a marubozu （shaved） candlestick。（No。 1 in Figure 4。5）； indicates that the closing price was。far higher than the opening price。
Candlesticks。also can differ in the length of their shadows； whether they have shadows。or not； and in the size of the real body itself。 Each candlestick。offers。a hint about what is。likely to happen next。
Ordinarily； a while candlestick。indicates。that prices。may be higher the next day and is therefore bullish； whereas。a black。candlestick。is。bearish and indicates。that prices。may fall （see Figure 4。6）。 Other shapes。indicate reversal points。 Examples。include doji and spinning tops； that is； very narrow real bodies； indicating a narrow range between the opening and closing prices。（see Figure 4。7）。 However； you have to be careful。 Candlestick。meanings。are contextual。 The meanings。of candlestick。shapes。differ depending on whether they appear near the top of the range or the bottom。 Meanings。will also differ if several candlesticks。are clustered together。 In other words； a specific。group of candlesticks。can indicate either an extremely bullish market or an extremely bearish one。
Reversal Patterns
It is。possible to use candlestick。analysis。to discover market turning points—the tops。and the bottoms。 One approach is。to look。for distinctive； easily seen patterns。that mark。a top or bottom。 The other is。to examine whether tops。and bottoms。have predictable patterns。 In practice； its。difficult to make judgments。from a single pattern。 A single* pattern may have* two； opposite； meanings； depending on whether it es。after the market has。made a substantial rise or a substantial fall （in fact； the meaning is。the same in that the pattern indicates。a market reversal； but it means。the opposite in the sense of going up or going down）。 The key； therefore； is。to examine not only the shape but also the timing of the pattern。
Takuri and Hanging。Man。Shapes
Takuri and hanging man shapes； with a small real body （the rectangular portion） and an extremely long lower shadow； are often seen at the bottom of the market。 Some examples。are found in Figure 4。8。 They can be quickly spotted in real charts。 The point to watch is。the lower shadow。 The relative size of the real body is。not that important； nor is。the color—white or black—or the presence of a short upper shadow。 As。long as。the lower shadow is。noticeably long； it fits。the pattern。 Takuri。 Strictly speaking； takuri refers。to a black。candlestick。that opens low and has。a long lower shadow and a small real body； but it can also be a white candlestick。and can have a bit of an upper shadow or a large real body； as long as。the lower shadow is。substantially longer than the real body。 Takuri also covers。doji shapes。like the dragonfly。and the hammer； in which the open and close are the same； as long as。the lower shadow is。of sufficient length。 Takuri shapes。are usually seen after the market has。experienced a substantial drop； and they represent an opportune buying signal； especially if they are acpanied by high volume （see Figure 4。9）。
A white takuri acpanied by volume （far greater trading volume than the previous day's） very likely marks。a bottom。 The reason for that is。quite simple。 Consider the psychology of investors。when a takuri is。formed。 If the market has。been in a prolonged decline； investors。begin to wonder why it hasn't stopped and when it eventually will。 The psychology flips。back。and forth between 〃Hurry up and stop already！” and 〃Could the market go down any farther？〃
In a situation like this； if the market opens。with more selling than usual； it means。that investors。have bee desperate and think。that the stock。will drop oven farther。 More people decide to dump their shares （cut their losses。and run）； so the price declines。 Other investors。see this。and jump aboard the selling bandwagon。 Once the desperation selling and dumping are over； however； few shares are left for sale； and even a small amount of buying will push the price back。up。 By the end of the session； the closing price is。at or very。near the open。 In other words； a takuri means。that all the sellers。have sold and there is。no more selling to e。 The bears。have seen their supply lines。cut； which makes。the bulls。stronger； and that is。why this。shape often means。that the market has。bottomed out
Hanging。Man。 The hanging man has。the same shape as。an ordinary takuri； but it's。a white candlestick。that occurs。at the top and is。often the precursor of a steep decline （see Figure 4。10）。 The name es。from the market wisdom that you'll end up hanging yourself if you buy on this。shape。 Here too； it does。not really matter whether the shape's。real body is。black。or white or whether it's。a doji or still a takuri。
The hanging man does。not appear often and so should be watched carefully when it does。 You're far less。likely to see a hanging man appear at the top than you are a takuri at the bottom or an inverted takuri at the peak。 Nor does。the hanging man generally appear by itself。
Once again； investor psychology explains。why this。shape indicates。a peak。 Unlike the takuri； in this。case the shape would appear at first glance to be bullish。 The bears。have been in charge and pushed the price down； but the bulls。were able to push it back。up during the day； and they appear to be quite strong。 But if the bulls。were really。that strong； they would have taken the sharp drop at the open； pushed back。up； and kept going quite a bit farther。 It's。a question of 〃Is。that all you can do？” If that is。as。far as。the bulls。can go； then they are weak。and about to be hung。
Shooting。Star and。Gravestone Shapes
Like the long lower shadow shapes； there are also shapes with long upper shadows； which are illustrated in Figure 4。11。 And like those with long lower shadows； long upper shadow shapes。indicate a top when they appear in a rising market and a bottom when they。appear in a falling market。 Similarly； it's。not that important whether the real body is。white or black； or whether the shape is。a doji； or whether there is。a slight lower shadow。 A long upper shadow isnsidered either a shooting star or a gravestone。
Shooting。Star。 When a shape with a small teal body （expressing the spread between the open and close） and a long upper shadow appears after a significant rise； it's。called a shooting star and indicates。a top。 In other words； until the previous。session； the rising trend was。moving along nicely and prices。were being bid up； but the bulls' supply lines。have now collapsed。 Traders。looking to buy have bought pretty much all they want and there are no more buyers。left； so the market has。peaked。
Gravestone。 Strictly speaking； a gravestone （Figure 4。12） is。a doji with a long upper shadow； and when it appears。near a bottom or after a sharp decline； it usually indicates。that the market has bottomed out。 As。with the shooting star； the gravestone can be interpreted more loosely to be any shape with a long upper shadow that appears。near a bottom。
The gravestone is。interpreted the same way as。a hanging man is。near the top。
The boars。have sold the stork。back。down but have been unable to break。very far through the low； which indicates that a bottom has。been reached。
The Logic Behind。the Shooting。Star and。Gravestone
In contrast to takuri and hanging man； these patterns have long upper shadows。and small or no real bodies （doji）。 If the real body is small； it is。a shooting star because the long upper shadow looks。like a et's。tail； if it’s。a doji； the shape is。called a gravestone because the long upper shadow looks。like a gravestone extending upward from the ground。 Both indicate reversal points。 Generally； a shooting star near the top indicates。that the price has。peaked； while a gravestone near the bottom indicates。that it has。bottomed out。 However； in practice； the distinction is。not that important。 What is。important is。the price mov