Price Action Trading: Master Candlestick Patterns
Why Price Action Matters
Price action trading is all about reading raw price movements (without indicators) to predict future moves. The first and most crucial step is learning candlestick patterns—they tell you the market's story in real-time.
Key Candlestick Patterns You Must Know
Bullish Engulfing Reversal Signal
🔴 (Small Red) → 🟢 (Large Green)
Structure: A small red candle followed by a larger green candle that fully engulfs the previous candle.
Meaning: Sellers were in control, but buyers aggressively took over.
Where to Trade: Near support levels or after a downtrend.
Bearish Engulfing Reversal Signal
🟢 (Small Green) → 🔴 (Large Red)
Structure: A small green candle followed by a larger red candle that fully engulfs the previous candle.
Meaning: Buyers were winning, but sellers overpowered them.
Where to Trade: Near resistance levels or after an uptrend.
Hammer Bullish Reversal
🔨 (Long lower wick)
Structure: Small body, long lower wick, little/no upper wick.
Meaning: Sellers pushed price down, but buyers rejected lower prices.
Where to Trade: After a downtrend (signals potential reversal).
Shooting Star Bearish Reversal
🌠(Long upper wick)
Structure: Small body, long upper wick, little/no lower wick.
Meaning: Buyers pushed price up, but sellers rejected higher prices.
Where to Trade: After an uptrend (signals possible reversal).
How to Use These Patterns in Trading?
- ✅ Wait for confirmation – Don't trade just on 1 candle.
- ✅ Combine with support/resistance – More reliable entries.
- ✅ Use in trending markets – Works best with momentum.
Example Trade (Nifty 50 Price Action)
- Nifty is falling for 3 days.
- At a key support level (e.g., 21,800), a Hammer candle forms.
- Next candle is green (confirmation).
- Entry: Buy Call Option at 21,850 CE.
- Stop Loss: Below the Hammer's low.
- Target: Previous swing high.
Next Steps in Price Action
- Support & Resistance (Where price bounces/reverses)
- Trendlines & Channels (To catch breakouts)
- Volume Analysis (Confirms strength of moves)