Psychology behind candlesticks and chart patterns

Undoubtedly there are many types of candlesticks and chart patterns, but we all know that ony few are important.

Those can be Doji’s, Hammer’s, Engulfing’s, Harami’s etc. And so with chart patterns such as Rounded bottom, Rectangle, Cup and Handle, Flag, Double Bottom or Top and many more.

Obviously, they works most of the time. They are the price behaviours! But here I don’t want to know their different shapes and types, but the real, The Actual psychology behind these each candlesticks and chart patterns!

How they trap individual traders like you and me, what smart money have done with it, Like this actual psychology.

Also tell me your favourite candlesticks or chart patterns and other experience if any!


I have less than basic knowledge regarding patterns, but as far as I can tell, patterns are not always clear, sometimes they appear as patterns only to some, and sometimes they are clear, classic patterns. If after a clear pattern has formed, the next move, be it price going up, down, or consolidation, more or less follows a standard path. So I think the outcome after a pattern is reliable.

Candles I think are more reliable than patterns. Because if we look at each candle, it definitely depicts what has happened for that particular duration. Collectively too, candles are more reliable, as I think there is a more standard structure, visible to all.

So I don’t think there is any trap or such, if we are looking at individual stocks, even if we see bull candles forming one after another, we can make our own understanding by looking at other things that pertain to the stock. I am talking about delivery trades here.

As I have limited understanding of all of the above, I cannot possibly say about the next moves for intraday, after watching some candles or a pattern, as the next moves are quick, a sharp reversal in the opposite direction.

Well said. Whatever the thing, these are market behaviours, that have proved many times! Definately, they works!

As you took delivery trades, these things matters the most for you, cause, as long as time is took by candlestick or chart pattern to form, it will be that effective!

And also, in bigger TF’s, they are more simple to find and work with due to sufficient time to thought for trade and less volatility as compared to intraday (where trades are of few minutes even).

But there are strong psychology, behind most of the candlesticks and chart pattern, like in hammer, that day, price has gone up, then gone down in a single day, so what smart money want to depict here is that there is no reliability to price movement.

Also that day, whoever took trade, they will end with their stoploss.

And next day, the price will go up rapidly and surprisingly into trend! Now, many traders will not have courage to have trade again due to two reasons: (1) as in previous day, price has gone up and down in a same day, so next day price movement is less realible (2) price will move with volatility, so people will not have time to took trade or possibly due to stoploss area is big as they have to put stoploss in hammer’s low.

So like this, their are psychologies behind these candlesticks and chart patterns. Many traders got trapped! We have to see that market is designed as such to fool people’s.

In order to escape, we have to know what price want to do that time (during formation of these candlesticks and chart patterns), what smart money want to do that time, what psychology does generate in individual traders, and thus only, we can escape!

How ever, one can ignore to learn psychology behind it, but what i think is It is more better to have deep knowledge than just viewing candlesticks on chart and taking trade.

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For day traders, I think it does not matter what yesterday was, today is today, today’s gap ups, gap downs, candles, patterns, support, resistance, are today’s. And I think volume also plays a role here. Even the stock or index is the same today as yesterday, the game is different today, so yesterday I may have closed for a loss, but today I could make profit, unless the same story is being repeated. Also, if there are any reasons for yesterday, I have to know if those reasons are still valid for today.

So there are many layers, many interconnected threads, and obviously to know all of these, to understand all of these, one has to experience them.

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Volume is one more precious thing, but i think due to FnO, its significance have gone down. It is not that it not works, but works best with stocks, which are not traded in FnO section. What you think about it?

As I look at a lot of stocks to choose from, sometimes I find the price moving up but volume does not support the price, so the trend could be considered as not strong. This happens even with selling, despite a big fall, if there is not much volume, it is said that only weak hands are selling, but if the price along with volume goes down, then it is strong. And with buying too, if there is a price increase crossing a resistance level, with volume, then it is considered strong, a strong up move.

So I think yes, volume does have a role, at least with momentum trading.

There are many such nuances, many intricacies, layers in the market, just like an ocean, spending time is the only way to experience them :fish: :shark:

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I think I’m little confused with it, does volume indicator shows volume of purchased stocks or it shows volume of purchased derivatives of stocks, let’s say if im apply it on stock, which is available on FnO

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I am using the standard volume bars until now, but checked volume oscillators after you have asked, and looks like these oscillators can give me some additional insights, let me see how they work.

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Volume oscillator indicator looked simple and understandable, so checked it, but looks like it is not reliable, particularly when the market is range bound, and at least for the stocks that I have checked, which more or less had the same volume in the recent past. I am yet to check if it works with small stocks.

I guess I should be content with the indicators that I use, and try to learn more from what is in the chart than adding another indicator which does not provide any additional information, and worse yet confusing :roll_eyes:


Not every patterns and candlesticks are important. Importance of candlestick and patterns depends on many factors, one of the most important factor is LOCATION (where the candlestick and patterns are forming). Locations like PDL,PDH, SUPPLY, DEMAND, SUPPORT AND RESISTANCE.

These patterns and candlesticks can be formed at random places and that’s where retail Traders get trapped. Most of the time they don’t work on these random places.

Even when these patterns formed at the right location and one take the entry as per text books and many YouTube channels, your positions shows profit for sometime it get reversed and this results in SL hit/loss.
Reason of loss is the bad entry not the pattern failure.
For example:
Head and shoulders patterns, most of the text book and Youtubers will say enter at the break of neckline, but the reality is the smart money all ready entered during the formation of right shoulder and at the neckline they already achieved 80% of the profit and that is where retail enters and expecting it will go down but the reality is that’s where smart money is going to book the profits and market will reverse from there. That’s how retail trader get trapped by smart money.

You can decode all other patterns like the above HNS example. Key is whenever someone says go long on the formation of certain patterns, ask why not short.

My favourite patterns are HNS, Wedge, channel. I don’t not use candlestick in general but I I constantly look for breakout candlestick with good volume change.

I learned these points after a long time and lots to testings.

Hope this helped.

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What i learned about HNS that it is strong trend reversal and the profits after breach of nackline is almost as similar to the difference between neckline and head top. However as you saying, it seems only option

I know it is a strong reversal and the fun fact is everyone knows it that’s why they don’t work at random places. Smart money knows that.

They can be one of the factor of reversal, along with it you need other confirmation as well.

I’m not saying it is is the only way. It is just my point of view.

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Understanding chart patterns can certainly help the trader analyse the direction and revise if they need to. Traders need to brush up on knowledge so when they do choose a type of chart, it matches their style and brings the best outcome. Candlestick charts & patterns are reliable and easy to understand. Check it out and see if it works for you.

Did you type this?

It looks like from an article, written for reading, and not spoken :grinning:

Good to know that traders are interested in the psychology behind the patterns.

Candlestick patterns are not just price action, but the price related to time is involved in these patterns.

There is an article on candlestick patterns where all the candlestick patterns are mentioned. The psychology behind the patterns is also explained well in it. Hope it will be beneficial for your psychological understanding. Candlestick patterns in Share Market Trading - Traders Mantra

To play with the candlestick patterns, a trader should not focus on the successful candlestick patterns while studying charts, but also on the failed patterns. It improves accuracy and emotions while trading.