The Simple 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 will help a trader to identify trends and spot upcoming breakouts and reversals or retracements. Many traders may be able to develop profitable trading systems, like AI Forex Robot, virtually entirely on the supposition of candlestick charts, and many more systems depend on them as a first or primary signal.
The chart is made from a series of blocks or candles, each one showing the open, close, low and high costs over a period. These can be costs of anything : stocks, commodities, currencies or whatever. The open and close prices may be the costs for a day’s trading but in most cases 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 designing systems around this kind of chart you may probably want to take a look at your signals over more than one time period 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 case the open price is the base of the candle’s wide block and the close price is the head 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 case of course the upper edge of the body is the open price and the lower edge is the close.
In both cases, the high during the period is the top of the vertical line or wick stretching upward from the top of the block. The low in 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 colors. You may 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 peek. Not only do you see if the candle as a whole is above or below the prior one, but you can also tell by the colors whether it marked a reversal or a continuation of the trend.
Certain patterns are especially important in learning to read candlestick charts.
In some cases of course 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 isn’t any wick in either direction, this is referred to as a Marubozu pattern.
In another case, the opening and closing prices 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 called 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, most likely part of a trend. The colour of the candle will tell you if 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 will indicate a troubled market with big fluctuations. Trend based trading will are suspicious of Doji patterns, that might be suggestive the market is starting to become unreliable.
naturally one candlestick on its own isn’t enough to form the root of a trading call. You will 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 spot whether a trend is forming, or if the lines are converging, whether a breakout might be anticipated. When you understand how to read candlestick charts you can base systems around these suggestions.
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