The Easiest Way to Read Candlestick Charts
Understanding how to read candlestick charts is needed for both stock trading and foreign FOREX trading. Candlesticks are a record of changes in price that can help a trader to identify trends and spot upcoming breakouts and reversals or retracements. Many traders can develop profit-making trading systems, such as AI Forex Robot, almost totally on the premise 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, high and low costs 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 usually you have control over the period and you can set your chart to show a candle for each hour, for five mins or whatever. If you are planning systems around this type of chart you may possibly wish to check 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 an amount that rose during the period. In this example the open price is the bottom of the candle's wide block and the close price is the apex of the block. If the price slipped in the period, the body of the candle will be shaded, either black or a color. In this situation of course 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 pinnacle of the vertical line or wick stretching upward from the apex of the block. The low during the period is the bottom of the vertical line or wick running down from the base of the block.
Some charts these days are shown in two colours. You might 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 fantastic 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 prior one, but you may also tell by the colors whether it marked a reversal or a continuation of the trend.
Certain patterns are particularly critical in learning how to read candlestick charts.
In some cases naturally the open or close will be the high or the low. In that case you do not have a wick in one or both directions. If there is no wick in either direction, this is referred to as a Marubozu pattern.
In another case, the opening and closing costs might have been the same. Then there is not any 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 fairly steady movement, possibly part of a trend. The color 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 troubled market with big fluctuations. Trend based trading will tend to be suspicious of Doji patterns, that may be a sign that the market is becoming untrustworthy.
naturally one candlestick on it's own is not enough to form the root of a trading decision. You will always look at a collection of candles. For example, you can draw trend lines along the highest highs and lowest lows on candlestick charts. These will help you to spot whether a trend is forming, or if the lines are converging, whether a breakout could be predicted. When you know how to read candlestick charts you can base systems around these suggestions.
The chart is made of a series of blocks or candles, each one showing the open, close, high and low costs 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 usually you have control over the period and you can set your chart to show a candle for each hour, for five mins or whatever. If you are planning systems around this type of chart you may possibly wish to check 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 an amount that rose during the period. In this example the open price is the bottom of the candle's wide block and the close price is the apex of the block. If the price slipped in the period, the body of the candle will be shaded, either black or a color. In this situation of course 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 pinnacle of the vertical line or wick stretching upward from the apex of the block. The low during the period is the bottom of the vertical line or wick running down from the base of the block.
Some charts these days are shown in two colours. You might 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 fantastic 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 prior one, but you may also tell by the colors whether it marked a reversal or a continuation of the trend.
Certain patterns are particularly critical in learning how to read candlestick charts.
In some cases naturally the open or close will be the high or the low. In that case you do not have a wick in one or both directions. If there is no wick in either direction, this is referred to as a Marubozu pattern.
In another case, the opening and closing costs might have been the same. Then there is not any 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 fairly steady movement, possibly part of a trend. The color 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 troubled market with big fluctuations. Trend based trading will tend to be suspicious of Doji patterns, that may be a sign that the market is becoming untrustworthy.
naturally one candlestick on it's own is not enough to form the root of a trading decision. You will always look at a collection of candles. For example, you can draw trend lines along the highest highs and lowest lows on candlestick charts. These will help you to spot whether a trend is forming, or if the lines are converging, whether a breakout could be predicted. When you know how to read candlestick charts you can base systems around these suggestions.
Posted by learnforex. Posted In : Forex Technical
