Candles that warn of a top
Intermediate · 1 min
A handful of candlestick shapes keep turning up at the top of a rise, just before it turns down. This lesson covers three of them — what each looks like, and the one thing that has to happen afterwards before any of them mean anything.
A share has been climbing for weeks. Then, on one day, something changes shape. Traders have given names to a few of these days — the hanging man, the dark cloud cover, the bearish engulfing — but all three describe the same underlying event: buyers who had been winning every day suddenly stop winning.
What they have in common
Each of the three only counts near the end of a run upward. The same shape in the middle of a flat, quiet stretch means nothing — these patterns borrow all their meaning from what came immediately before them.
None of them is finished on the day it forms. What happens next decides whether sellers actually took over or buyers shrugged it off by the following close. Each lesson below covers the specific rule for its own shape.
In this topic
A small body on a long lower wick, after a rise — the same shape as a hammer, in the opposite place.
Intermediate · 3 min
A strong up day, then a strong down day that cuts deep into it — the deeper the cut, the more attention it gets.
Intermediate · 3 min
A red candle that swallows the green one before it completely — the bigger the swallow, the more attention it gets.
Intermediate · 3 min
Try this in the app
- Research — open a share and look at its candles
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Works with
- Candlestick charts — Each candle packs a whole day of trading into one shape.
- Candles that often mark a turn — A few shapes show up often enough at turning points to be worth recognising.
- The hanging man — A small body on a long lower wick, after a rise — the same shape as a hammer, in the opposite place.
- Dark cloud cover — A strong up day, then a strong down day that cuts deep into it — the deeper the cut, the more attention it gets.
- Bearish engulfing — A red candle that swallows the green one before it completely — the bigger the swallow, the more attention it gets.