 Welcome to this short video on candlestick trading. My name's Ryan O'Doady. I head up product development at CMC Markets and we're gonna walk you through candlestick charting techniques. So there's a number of different charts that you can put onto the platform. One of the more popular ones is the line chart. And a line chart basically just plots the close price of a certain interval. So whether or not you're using a daily interval or a 15 minute interval, it plots the close prices of those intervals and creates a line chart as you can see on the screen now. Now with line charts, it only gives you one bit of information. It gives you the close price. The advantage of candlestick charts is it gives you four bits of information. It gives you the open, the high, the low, and the close. And it does so in a way that's quite visual. So you can quickly look at it and see whether or not the price has gone up or down in value. So let's take a look. So you'll see on the charting package at the moment we've got the line chart on. You've got all these different types of charts that you can use, but by far the most popular is candlestick charting. So if we click on candles, you can now see the graphical representation has changed. You can now see what we call candlesticks. Now in the top left-hand corner of the screen, you can see that each of those individual candles is one day's worth of price action. So if we hover over, let's say, this red candle here, you've got the body of the candle, which is the range between the open and the close price. These wicks display the high and the low of the day as well. And the color of the candle is based on whether on the market has gone up or down in value for that period. Now candlesticks can be placed on any interval. We've shown you on the daily candle, but here on the four hour, the one hour, or the 15 minute intervals as well. So it's a popular tool by many traders to give you a really good understanding of what the market's been doing on those particular time periods. The first candlestick formation we're gonna look at is the doji. Now the doji is a small candle with a high and a low where the open and the close price are pretty much exactly the same. The second one is a long-legged doji. The long-legged doji is simply the same, except the wicks are slightly longer. These are basically candlestick formations where we're showing indecision. We're not really sure where the market should go. The buyers and sellers have battled throughout the day, but by the end of it, it's exactly the same price. The second pattern we're gonna talk about is the hammer. The hammer is very similar to a doji in the sense that the open and the close price are very close to each other. But unlike the doji, there is actually a real body attached. Now a hammer formation is where we've seen a downtrend occur and then the buyers and the sellers are battling at the bottom of that particular candle. But by the end of the day, or by the end of the interval, the buyers have been able to achieve an upward movement which could then signal a reversal in the trend. Now with any candlestick formation, it's important to have a trend beforehand and then the candle afterwards will give you that confirmation of a reversal of trend. So you can see on the image here that the candle after the hammer formation has actually been a very positive candle indeed. So that then is the confirmation and we're looking at a reversal in trend and potentially a buy trade. The next candle formation we'll talk about is the hanging man. Now the hanging man is exactly the same as a hammer. Basically, instead of being at the bottom of a trend, it's at the top of a trend. So here it's the opposite. Basically the sellers have been trying to battle it out but in the end the buyers are still dominated and the price has finished close to the top of the candle. Now if you've got preceding candles that are blue and that trend, potentially the next day, if those sellers come back into the market, we could see a reversal at the top of that formation and you can see the confirmation on this screen here where the next candle, you'll see a orange candle or a downward candle is confirmation that we've got that reversal and the hanging man formation has given you that signal that that was potentially going to happen. The next candlestick formation we'll talk about is the morning star. The morning star is a very small candle at the bottom of a trend. Yes, with this candle formation there is a real body attached and you can see in this particular image, you can see we've got a downward trend occurring. The morning star is a small candle with a small real body and basically what that's saying is that the momentum of that downward trend is slowing. We're starting to see that there's a little bit of indecision. We're not quite sure where the market's gonna go and so that may be the next trend is finished. Now confirmation is required. So the next candle, we start to see a blue candle or an up candle and that confirms that the morning star formation is finished and it gives you a potential there to place a trade on the upside. The next formation is the evening star. So the opposite to the morning is that this appears at the top of a trend. So exactly the same in the sense that it's a small candle with a very small real body and it appears at the top of a particular trend market. Now you'll see on this example, we've seen a number of positive candles appearing before that evening star appears. The evening star again is still a positive candle but again, we're starting to see that indecision is appearing in the market and potentially there could be a market movement occur. The next candle is a orange candle or a downward candle. That gives us our confirmation that this has actually been a trend reversal and we could then do a sell trade and profit from a falling market. The next couple of candle formations are what we call engulfing patterns. Now the first one we'll look at is a bearish engulfing pattern. A bearish engulfing pattern is quite a popular pattern to look at because it's quite a dominant pattern. What do I mean by that? Basically what we've got here is we've got two candles, two positive candle going up and then we've seen the market gap up open. So we've actually seen the market move up and it's gapped above its previous close. So we're starting to think, oh, there's some positive momentum in the marketplace. But by the end of the day, all of that gap has been removed and we've seen the sellers dominate the marketplace and actually it's finished below the open price of the previous candle. So you can see that it engulfs the previous candle and that's why we call it engulfing pattern. Now it's a bearish pattern because of the fact that we're starting to see a downward movement in this particular marketplace. Next pattern is the bullish engulfing pattern. So again, opposite in the sense of the bearish one. Here what we start to see is we see the market gap lower the next day. So we think, okay, well, the trend is down as you can see from this image. Previous trends down, we see a gap lower. Initially we think that there's momentum there on the downward side and that could be a sell trade. But by the end of the day, the buyers have come back into the market and we've started to see that the actual price finishes above the previous close. So potential opportunity there to place a buy trade. Next pattern we're gonna talk about is what we call the white soldiers. Now the three white soldiers are a great trend changing formation. Basically what happens is we see a downward trend and then we see three big strong bullish candles appearing straight afterwards. What that suggests is that the momentum on the downward side, on the selling side has disappeared and the buyers have come back into the marketplace. And with three strong signals, we're looking at a complete change in trend and is a really good opportunity for clients to say, well, you know, we thought it was a downward market, but now actually the buyers have come back in and we can see a potential long-term uptrend. The opposite of the three white soldiers is what we call the three black crows. Now the three black crows are acting the exact same way. We've seen an uptrend, the momentum in that uptrend is slowing. So we're starting to see the candles prior to this, being smaller body candles. We're starting to see some indecision and then we get three big downward candles in a row. Now that suggests that the upward movement has gone, the uptrend's out of there. The sellers have come back into the market and we're looking at potentially a longer term downtrend in the marketplace. So again, a great opportunity to potentially place a sell trade. So identifying these patterns by yourself can be difficult. You've got a lot of understanding to go through to see whether or not you can identify like the three white soldiers or the three black crows, but we've made it slightly easier for you on the platform. So if you go into the charting package, in the bottom right of the charting package is a option called patterns. Now you've got general patterns or classic patterns such as triangle formations and channel formations, but the second tab is your candlestick formation. Now here we have a range of 60 predefined candlestick formations that you can choose from. And what we do is we automatically scan price action to identify those candle formations for you. So you don't need to do it yourself. The actual software can do that for you. Now, if you go and have a click here, we can click on the doji for example. Once we've clicked on the doji, you can see that the platform highlights all the different doji formations that can be seen within the price action. It can do it on any intervals. So we've got one there on the one day, the four hours and 15 minutes. So if you're looking at a longer term strategy or a shorter term strategy, then you can certainly put these patterns on there and see how you go. Now candlestick formations, they're a great tool to use in addition to all of the other sort of indicators that you've got out there. So combine them with some of your support and resistance levels, your MACDs or your RR size, and they will help you define where there's a potential change in strategy. So give it a try for yourself and see how you go.