Significance of Candlestick Patterns and its Anatomy

Candlestick patterns and anatomy of candlestick formation

In the 17th century people from Japan started using Candlesticks while trading rice. Let us go back in time and meet Homma, a renowned rice merchant from the Japanese town of Sakata. He traded in Dojima market in 1700s and is said to have developed candlestick charts during in his lifetime. Later on, his idea passed through several minds and got refined into the system what modern day traders use today.

We are candlestick patterns in algorithmic trading. We have talked about this momentum based trading strategy in the article: CandlestickTrading : A Momentum based trading strategy and we also used pivot points in conjunction with candlestick technique to predict movement of price in trade markets.

Now, we will talk about the anatomy of candlestick formations and what these patterns actually imply for trade analysts. The following infographics will be very useful for those who are using candlestick techniques to monitor market movement.

Anatomy of Candlestick Formation


Candlestick Patterns and their meaning

Trade analysts use candlestick patterns to recognize market turning points and they are utilized to reduce one’s exposure to market risks. Here are some of the candlestick patterns and what they mean. One of the patterns is called Doji, now that you know about the history of candlestick charts, can you guess from where it got its name from?



Candlesticks today are used by swing traders, day traders, investors and financial institutions because of the following reasons:

  • Candlestick patterns are easy to comprehend
  • They indicate market turning points early
  • You can get unique insights by using these
  • They can be used in all kinds of markets

candlesticks source

Next Step

Candlestick patterns are one of the predictive techniques used by traders all over the world. The candlestick charts are used in stock markets and forex markets among others. If you are a trader or a programmer who is inching to venture into algorithmic trading then we have Executive Programme in Algorithmic Trading (EPAT) for you.

Written by Harikumar Krishnamoorthy

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