The Easiest Way to Read Candlestick Charts
Knowing how to read candlestick charts is needed for both stock trading and foreign currency trading. Candlesticks are a record of movements in prices that can help a trader to identify trends and spot upcoming breakouts and reversals or retracements. Many traders may be able to develop profit-making trading systems, like AI Forex Robot, almost totally on the supposition of candlestick charts, and many more systems depend on them as a first or first signal.
The chart is made of a collection 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 prices for a day's trading but usually 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're planning systems around this kind of chart you'll probably need to test 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 fee that rose during the period. In this case 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 dropped during the period, the body of the candle will be shaded, either black or a color. In this case of course the higher edge of the body is the open price and the lower edge is the close.
In either case, the high during the period is the top of the vertical line or wick stretching upward from the apex 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 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 peek. Not only do you determine if the candle in total is above or below the prior one, but you may tell by the colours whether it marked a reversal or a continuation of the trend.
Certain patterns are particularly important in learning how 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 called a Marubozu pattern.
In another case, the opening and closing costs might 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 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 unsettled market with big fluctuations. Trend based trading will tend to be suspicious of Doji patterns, that might be an indication that the market is starting to become unreliable.
of course one candlestick on it's own isn't enough to form the basis of a trading decision. You'll 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 may be expected. When you understand how to read candlestick charts you can base systems around these prospects.
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