How to Spot Winning Bullish Candles Like a Pro

CA Manish Singh: So, up until now, in the previous three chapters, we have learned about how a candle opens, how it closes, and what underlying trend a candle can point towards. But there’s more to it. Some candles show a lot of movement, while others show very little movement. Some candles have long green or red lines, while others have short bodies. What’s the underlying difference between these candles? That’s what we’ll explore in this fourth chapter of our technical analysis series. 

Our intention is to understand what happens when a candlestick pattern is formed, how to interpret it, and what the next price direction might be. We’ll start by identifying bullish candlestick patterns. Patterns can either be a single candle or a combination of candles. In this video, we’ll focus on single bullish candlestick patterns. 

The Marubozu Candle 

CA Manish Singh: The first pattern we’ll discuss is the Marubozu candle. 

What exactly is a Marubozu candle? The term Marubozu comes from Japanese candlestick patterns. It is a simple but powerful pattern. 

The basic meaning of a Marubozu is that the candle opens at one point and closes at another point, and throughout the duration of the candle, the price only moves in one direction. It doesn’t move up or down during the formation of the candle. 

For example, if the candle opens at ₹100 and closes at ₹110, and during that time, it neither goes above ₹110 nor below ₹100, this is a classic Marubozu. 

So, the Marubozu candle will appear in a single colour. If the opening was green, it closes green in a particular range. It hasn’t gone above that range or below it, and the size of the candle is significantly larger than the other candles around it. 

This is what we call a Marubozu candle. 

Visual Representation of a Marubozu Candle 

CA Manish Singh: Let’s take a look at what this looks like on the screen. You’ll see a large green candle. This is our bullish Marubozu. Normally, we expect bigger candles, but even this size shows strength. 

If we look at this particular candle, you’ll notice that there are no significant wicks just a solid body. The price has moved in one direction and has sustained that move. This is a classic Marubozu candle. 

Continuation of Momentum 

CA Manish Singh: A key thing to notice is that after a Marubozu candle, the next candle will typically continue the momentum. Here, you’ll see the momentum continuing with the next candle moving in the same direction. 

This pattern often repeats itself for three to four candles, all moving in the same direction. So, the Marubozu candle indicates that the next candle will likely continue the trend. 

Bullish and Bearish Marubozu 

• Bullish Marubozu: If the price opens lower and closes higher, this is a bullish Marubozu. 

• Bearish Marubozu: If the price opens higher and closes lower, it is a bearish Marubozu. 

For example, if the price opens at ₹25,432 and closes at ₹25,455, and the candle shows no significant movement above or below, it’s a Marubozu candle. 

The Spinning Top: Sign of Indecision 

CA Manish Singh: Next, we have the Spinning Top. This is a candle with a small body and long wicks at both ends. The price moves up and down, but the closing price is near the opening price. 

The Spinning Top indicates indecision in the market. It’s a sign that the market is uncertain and may be preparing for a reversal. If it appears at the top of an uptrend, it could signal a potential reversal downwards. Similarly, at the bottom of a downtrend, it may indicate the market is ready to reverse upwards. 

Hammer Candlestick: A Reversal Signal 

CA Manish Singh: The next important pattern is the Hammer. This pattern has a small body with a long lower wick. It forms when the price falls significantly but then rebounds to close near the opening price. 

A Hammer is a bullish reversal signal when it appears at the bottom of a downtrend. The long lower wick indicates that sellers pushed the price down, but buyers stepped in and pushed the price back up. This suggests that the market might reverse upwards. 

Example of Hammer: 

• Price moves down: Price reaches ₹25,502. 

• Price rebounds: The price then rises to ₹25,520. 

• Appearance: The body of the candle is small, and the long wick shows that the price was pushed down but later recovered. 

Inverted Hammer and Hanging Man 

CA Manish Singh: If the Hammer is flipped upside down, it becomes an Inverted Hammer or a Hanging Man. 

• Inverted Hammer: Appears at the bottom of a downtrend and suggests a potential reversal upwards. 

• Hanging Man: Appears at the top of an uptrend and suggests a possible downward reversal. 

For example, if the price reaches ₹25,500, drops to ₹25,450, and then rises to close at ₹25,470, it forms an Inverted Hammer. 

Doji Candlestick: The Sign of Indecision 

CA Manish Singh: The Doji candlestick shows indecision. The opening and closing prices are almost identical, creating a small body. The wicks can be long or short. 

The Doji can signal a reversal or continuation depending on the surrounding candles. If it appears at the top of an uptrend, it suggests a reversal to the downside. If it appears at the bottom of a downtrend, it suggests a reversal to the upside. 

Example of Doji: 

• Price movement: The price opens at ₹25,500, rises to ₹25,550, then falls back to ₹25,520 and closes at ₹25,510. 

• The body is tiny, and the wicks show movement in both directions, indicating indecision. 

Conclusion: Identifying and Interpreting Patterns 

CA Manish Singh: Candlestick patterns offer crucial insights into market behaviour. By understanding these patterns, you can anticipate price movements and make more informed decisions. 

Key Takeaways: 

• Marubozu: Signals a strong trend in one direction. 

• Spinning Top: Indicates indecision and possible reversal. 

• Hammer: Suggests a bullish reversal when found at the bottom of a downtrend. 

• Inverted Hammer: Suggests a potential reversal to the upside. 

• Hanging Man: Indicates a possible reversal to the downside. 

• Doji: Represents indecision and can signal either a reversal or continuation. 

In the next chapter, we will explore combinations of candlestick patterns and how they work together to provide stronger signals. 

Disclaimer: Investments in securities markets are subject to market risks. Please read all related documents carefully before investing.