Reading Candlestick Patterns for Beginners — Workflow

Reading Candlestick Patterns for Beginners — Workflow

In the exciting world of stock trading, success depends on understanding market behavior — and that begins with candlestick patterns. Whether you’re trading equities, forex, or crypto, candlestick analysis gives you valuable insights into price movement, sentiment, and decision-making.

At AI Computer Classes – Indore, we help learners build practical trading and analytical skills through hands-on sessions, simulations, and visualization tools. In this tutorial, we’ll walk you through a beginner-friendly workflow to understand and interpret candlestick patterns effectively.

💡 What Are Candlestick Patterns?

Candlestick charts represent market price movement within a specific time frame.

Each candlestick shows:

• Open price – the price at which the asset started trading.
• Close price – the final price in that time period.
• High price – the highest traded price.
• Low price – the lowest traded price.

The shape and color of the candle tell traders whether the market sentiment was bullish (buyers in control) or bearish (sellers dominant).

🕯️ Green or white candles = Price went up

🕯️ Red or black candles = Price went down

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🧩 The Anatomy of a Candlestick

Understanding the parts of a candlestick is the first step in mastering chart reading.

      High
       │
   ┌───────┐
   │       │ ← Body
   │       │
   └───────┘
       │
      Low

Key Terms:

• Body: The range between open and close prices.
• Wick/Shadow: The lines above and below the body showing highs and lows.
• Color: Indicates direction — green for bullish, red for bearish.

🔎 Example:

If the body is long and green, buyers dominated that session.

If it’s short with long wicks, there was market indecision.

🧭 Step-by-Step Workflow for Reading Candlestick PatternsStep 1: Observe the Trend

Before analyzing individual candles, identify whether the overall trend is uptrend, downtrend, or sideways.

You can use moving averages or trend lines for this step.

📈 Uptrend = Higher highs and higher lows

📉 Downtrend = Lower highs and lower lows

Step 2: Look for Key Candlestick Formations

Candlestick patterns are divided into two main categories:

1️⃣ Single Candlestick Patterns

• Doji: Market indecision (open ≈ close).
• Hammer: Bullish reversal after a downtrend.
• Shooting Star: Bearish reversal after an uptrend.
• Marubozu: Strong momentum candle without wicks.

2️⃣ Multiple Candlestick Patterns

• Bullish Engulfing: A small red candle followed by a large green one.
• Bearish Engulfing: A small green candle followed by a large red one.
• Morning Star: Three-candle bullish reversal pattern.
• Evening Star: Three-candle bearish reversal pattern.

💬 Tip: Use ChatGPT to simulate explanations for each pattern:

“Explain the psychology behind a hammer candlestick with examples.”

Step 3: Confirm with Volume and Indicators

Candlestick patterns work best when supported by volume confirmation and technical indicators such as:

• Relative Strength Index (RSI)
• Moving Average Convergence Divergence (MACD)
• Bollinger Bands

📊 Example:

If a Bullish Engulfing pattern forms on high volume, it’s a stronger buy signal than one with low volume.

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⚙️ Step 4: Create a Workflow in Excel or Power BI

You can use Excel or Power BI to track candlestick pattern performance:

In Excel:

• Create columns for Date, Open, High, Low, Close, Volume, and Pattern Type.
• Use conditional formatting to color-code bullish/bearish patterns.
• Add a formula to calculate percentage change.

In Power BI:

• Visualize weekly candlestick summaries.
• Create dashboards to compare pattern success rates.
• Identify which patterns work best for specific stocks.

📈 Advanced Learners: Integrate Python with Excel to automate pattern recognition using libraries like pandas and mplfinance.

🧠 Step 5: Understand Market Psychology Behind Candles

Every candlestick represents the battle between buyers and sellers.

Understanding this helps you anticipate what’s next.

PatternMarket PsychologyActionHammerBuyers fighting back after sell-offPossible bullish reversalShooting StarSellers rejecting higher pricesPossible bearish reversalDojiConfusion and indecisionWait for confirmationMarubozuStrong confidence by one sideContinue in same direction

🧩 Tip: Use ChatGPT to generate story-based explanations:

“Explain the market emotion behind a Doji candlestick like a story.”

This storytelling method helps beginners retain concepts faster.

🧮 Step 6: Practice Pattern Recognition

To become fluent, practice is key.

1. Open free charting platforms like TradingView.
2. Choose a stock or crypto asset.
3. Observe daily or hourly candles.
4. Identify patterns and mark them on your chart.
5. Compare your analysis with ChatGPT’s insights.

💬 Prompt Example:

“Identify the candlestick pattern from this price sequence: open 150, high 160, low 145, close 158.”

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🔍 Step 7: Avoid Common Mistakes

Even experienced traders make errors while reading candlesticks. Watch out for:

• Ignoring the larger market trend.
• Misinterpreting patterns without confirmation.
• Over-relying on single-candle signals.
• Forgetting to check trading volume.

Always validate candlestick readings with technical indicators and fundamental context.

🧭 Step 8: Build Your Candlestick Journal

Keeping a record helps track progress and accuracy.

Use a digital journal (Excel, Notion, or Google Sheets) to log:

• Date & stock symbol
• Observed pattern
• Prediction vs. actual movement
• Notes & screenshots

📘 This builds discipline and refines your analytical thinking.

🏁 Conclusion

Candlestick patterns are the foundation of technical analysis — and mastering them gives traders the power to read markets like professionals.

By following this workflow:

✅ Learn candlestick theory

✅ Practice on real charts

✅ Analyze data using Excel or Power BI

✅ Confirm signals with indicators

At AI Computer Classes – Indore, our mission is to help you understand markets, use tools effectively, and trade confidently.

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📞 Contact AI Computer Classes – Indore

✉ Email: hello@aicomputerclasses.com

📱 Phone: +91 91113 33255

📍 Address: 208, Captain CS Naidu Building, near Greater Kailash Road, opposite School of Excellence For Eye, Opposite Grotto Arcade, Old Palasia, Indore, Madhya Pradesh 452018

🌐 Website: www.aicomputerclasses.com