Easy Ways to Read a Candlestick Chart: 12 Steps with Pictures
how to read candlestick charts

On a 1-hour chart, for instance, each candlestick represents one hour of activity. A price how to read candlestick charts action analysis is useful as it can give traders an insight into trends and reversals.

how to read candlestick charts

After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish. Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. Doji alone are not enough to mark a reversal and further confirmation may be warranted. This contrast of strong high and weak close resulted in a long upper shadow.

Inverted Hammer and Shooting Star

These upper and lower shadows provide important clues about the trading session. An Upper shadow signifies the session high, while a lower shadow signifies the session low. But before we dig any deeper, let’s dig back into the history and evolution of the candlestick patterns. A long lower wick on a candle with a relatively short body after an uptrend shows that there has been a massive sell-off.

A Bearish Engulfing pattern is when a giant solid candlestick follows a smaller, hollow candlestick and completely “engulfs” the smaller candlestick. It means that purchasers no longer have any influence over how much a stock will fluctuate in price. It indicates that the selling pressure from the first day may have subsided and that a bull market may be approaching. The initial price exchanged during the development of a new candle is represented as the open price. If the price begins to rise, the candle will become green and the candle will turn red if the price falls. The distance between the high and low of the candle is called the range of the candlestick.

Candlestick Chart vs. Bar Chart

There are also several 2- and 3-candlestick patterns that utilize the harami position. Candlestick Chart, data collection containing the open, high, low, and close values for each time period you choose to display is required. The candlestick’s “body” (sometimes referred to as “the genuine body”) is the hollow or filled component of the candlestick. The shadows, also known as “wicks” and “tails,” are the long, thin lines above and below the body that depicts the high/low range.

  • The red candle’s body can be completely engulfed by the body of the previous candle.
  • A candlestick with an ultra-small real body is called “doji”.
  • This is followed by three small real bodies that make upward progress but stay within the range of the first big down day.
  • The preceding green candle keeps unassuming buyers optimism, as it should be trading near the top of an up trend.
  • If you want to learn how to apply candlestick chart analysis to your trading strategy, this article covers all the basics to help you get there.

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