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How to read candlestick charts

How to Read Candlestick Charts

These enable traders to visually interpret price action to make more informed decisions on trades especially when used in conjunction of other complementary tools and strategies. The shadow, or wick, length represents the difference between the opening/closing price and the highest/lowest price recorded during that time period.

Let’s say you are looking at an H4 chart like the one shown above. When you switch to the H1 chart, you will have 4 times more candles. A bearish candlestick forms when the price opens at a certain level and closes at a lower price. The default color of the bearish Japanese candle is red, but black is also popular. A hanging man candlestick signals a potential peak of an uptrend as buyers who chased the price look down and wonder why they chased the price so high. If the preceding candles are bearish then the doji candlestick will likely form a bullish reversal.

Forex candlestick trading example

For example, if the price is going sideways for a while and it now forms a big bullish bar. This shows that the buyers have now taken over and it’s likely How to Read Candlestick Charts that it will start moving upwards from here for the next few bars. It’s not easy to memorize all the candlestick patterns right from the start.

The first candle is any long and bearish candle, the second one is a small and indecisive, and the third candle is any long and bullish candle. A harami cross is a candlestick pattern that consists of a large candlestick followed by a doji. A bearish harami cross occurs in an uptrend, where an up candle is followed by a doji—the session where the candlestick has a virtually equal open and close. ​A bearish harami is a small real body completely inside the previous day’s real body. This is not so much a pattern to act on, but it could be one to watch.

Which Candlestick Pattern Is the Most Bullish?

Sometimes, you might see it referred to as the candle’s shadow. Candlestick charts have become the standard choice for technical traders today for a good reason. They give you plenty of information without making it difficult to absorb. Sure, the stock still comes down sometimes and forms a valley , but each successive peak and valley are higher than the last. You probably understand the concept of peaks and valleys as it relates to mountains. Mountains have their very high peaks, which are usually followed by much lower points called valleys. But, what if we switch to a 5-minute chart, where a new candle is created every 5 minutes?

How to Read Candlestick Charts

The Hammer and Hanging Man look exactly alike, but have different implications based on the preceding price action. Both have small real bodies , long lower shadows and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

Triple Candle Pattern

There’s an upward trend of open candlesticks, followed by a doji. This shows the stock is best to watch and wait to see any trends. A small open body is dwarfed by the previous day’s solid real body.