Recently, some friends have asked me how to interpret candlestick charts, so I decided to organize some of my insights over the years. To be honest, back in 1990 when our domestic stock market opened, we started using candlestick charts directly. But after all these years, most people’s understanding of candlesticks still stays at the Japanese theory level, which is just scattered statistics of single, double, and multiple candlesticks, without forming a systematic, complete model.

Initially, I was the same—looking at various indicators, studying candlestick combinations, thinking that mastering these would allow me to predict the market. Later, I realized that technical analysis is just a reference tool, not the Bible. Conclusions drawn from a classic candlestick pattern or a commonly used indicator are not necessarily correct. Actual trading still requires specific analysis based on the situation; rigidly applying patterns blindly is not advisable.

Candlestick charts are actually yin-yang candles, originating from rice market trading in Japan’s Edo period, and later introduced into the stock market. The reason for their popularity is because they are intuitive, three-dimensional, and can relatively accurately predict future market trends, as well as judge the balance of bullish and bearish forces.

There are 48 types of candlesticks: 24 bullish (yang) and 24 bearish (yin). Bullish candles are further divided into small bullish, medium bullish, large bullish, and bullish doji stars. Each type is subdivided into six scenarios based on the size of the real body and the length of upper and lower shadows. Simply put, the larger the real body of a bullish candle, the stronger the buying pressure, and the more likely the market will rise; longer lower shadows indicate stronger buying pressure and a rise; longer upper shadows suggest stronger selling pressure and a decline. The logic for bearish candles is the opposite.

To truly develop a trader’s eye, the key is to understand some common candlestick patterns. Here are the five most practical ones I’ll share.

Morning Star appears at the end of a downtrend. The first day is a long bearish candle, indicating the downtrend continues; the second day gaps down and forms a doji or hammer, creating a gap from the previous day, indicating the decline is starting to shrink, which is a sign of a potential reversal; the third day is a long bullish candle, showing strong buying, and the market has turned positive. This pattern generally signals an imminent reversal.

Evening Star is the opposite of Morning Star, appearing during an uptrend. The first day is a long bullish candle continuing upward; the second day gaps up but forms a doji or hammer; the third day closes bearish. This is a clearer reversal signal and also a good point to consider selling. Combining this with volume analysis can improve accuracy.

The Red Three Soldiers is also quite common—three consecutive bullish candles, each closing higher than the previous day, with opening prices within the previous candle’s real body, and closing near the high. When this pattern appears, the outlook is mostly bullish, but pinpointing an exact next move is not easy.

The Three Black Crows is the opposite of Red Three Soldiers. In an uptrend, three consecutive long bearish candles appear, each closing below the previous day’s low, forming a stair-step decline. When this pattern shows up, caution is advised, as it indicates the stock price may further decline.

Another pattern is the Double Gaps, often appearing at the top of a stock’s phase. After a rise, a long bullish candle appears, followed by two days of gap-up openings but closing bearish, forming upward gaps. This indicates that the bulls’ attempts to push higher have failed twice, showing signs of weakening momentum, and increasing the likelihood of a reversal. When encountering this pattern, it’s best to stay alert, consider taking profits or reducing positions, and wait for clearer market direction.

Ultimately, understanding candlestick patterns still requires gradual experience in actual trading. Indicators and patterns are just aids; the most important thing is to develop your own judgment. Recently, I’ve also been observing the market on Gate, and I feel that continuous observation and practice are necessary to truly master this set of skills.