The Simple Way to Read Candlestick Charts
Knowing how to read candlestick charts is necessary for both stock trading and foreign currency trading. Candlesticks are a record of price movements that can help a trader to identify trends and spot imminent breakouts and reversals or retracements. Many traders are able to develop worthwhile trading systems, such as AI Forex Robot, virtually totally on the supposition of candlestick charts, and many more systems rely on them as a first or primary signal.
The chart is made of a series of blocks or candles, each one showing the open, close, low and high prices over a period. These can be prices of anything : stocks, commodities, currencies or whatever. The open and close prices might be the costs for a day's trading but in most cases you have command over the period and you can set your chart to show a candle for each hour, for five minutes or whatever. If you are coming up with systems around this kind of chart you will doubtless want to take a look at your signals over more than one period of time before you open a trade.
If shown in monochrome, the candle will be unshaded or white for a price that rose in the period. In this example the open price is the base of the candle's wide block and the close price is the top of the block. If the price fell in the period, the body of the candle will be shaded, either black or a color. In this situation naturally the upper edge of the body is the open price and the lower edge is the close.
In all cases, the high during the period is the top of the vertical line or wick stretching upward from the pinnacle of the block. The low during the period is the base of the vertical line or wick running down from the base of the block.
Some charts nowadays are shown in 2 colours. You could have green or blue for a bullish period when the price was rising and red for a bearish period when the price was falling.
the wonderful thing about candlesticks is that you can see the direction of price movements at a glance. Not only do you see if the candle in total is above or below the previous one, but you may also tell by the colors whether it marked a reversal or a continuation of the trend.
Certain patterns are particularly important in learning the best way to read candlestick charts.
In some cases naturally the open or close will be the high or the low. In that case you don't have a wick in one or both directions. If there is no wick in either direction, this is known as a Marubozu pattern.
In another case, the opening and closing costs could have been the same. Then there is no candle body but only wicks stretching up and down from the horizontal line that marks the open and close. This is known as a Doji pattern.
If the body of the candle is long with short or non existent wicks, close to Marubozu, this indicates a reasonably steady movement, potentially part of a trend. The colour of the candle will tell you whether or not it is an upward or downward movement.
On the other hand if the wicks are long and the body is short or non existent, more like the Doji pattern, this could indicate a choppy market with big fluctuations. Trend based trading will tend to be suspicious of Doji patterns, which may be a sign the market is starting to become unreliable.
naturally one candlestick by itself is not enough to form the foundation of a trading call. You'll always look at a series of candles. For example, you can draw trend lines along the highest highs and lowest lows on candlestick charts. These will help you to identify whether a trend is forming, or if the lines are converging, whether a breakout may be predicted. When you know the way to read candlestick charts you can base systems around these suggestions.
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