How To Read Candlestick Charts

white candlestick

Our Rover review reveals an excellent stock screening, research, and portfolio tool for long-term US value, income, and growth investors. Easy to use yet incredibly powerful, Stock Rover is the best stock screener available for US investors. Although Candlesticks have many advantages, they can seem like information overload to the beginner. This section will show you how Candlesticks work and focus on what they are trying to tell us. There are a few psychological principles involved with Candlesticks, and when you know them, you can understand the meaning of all the patterns without having to learn them all.

strong buying pressure

  • You probably understand the concept of peaks and valleys as it relates to mountains.
  • The chart shows the opening, closing, high, and low prices of the security in the form of a candlestick.
  • Let’s dig a little deeper into how to read the most common reversal candlestick patterns.
  • The opening, high, low, and closing prices are visible and easily recognised during a specific time frame.

The chart has a rich history dating back to 18th century Japan, which is why they are also known as Japanese candlesticks charts. The art of Forex fundamental analysis is both intricate and crucial to understanding the true valuation of any investment or trading vehicle, in this case currency pairs. Fundamental analysis is a method of analysing the financial markets with the purpose of price forecasting.Forex fundamental anal…

Each candlestick pattern is reliable in particular situation. It is considered that the most accurate patterns are reversal ones, like the hammer, the hanging man, the dark cloud cover, and so on. Continuation patterns are also important, for example, three black crows, three white soldiers, bullish rising three and bearish rising three, and so on. The Japanese candlestick charts are a popular and user-friendly tools to monitor the price movements and predict the changes in the trend. Following the bullish candlestick, there is forming a bullish flag.

Higher timeframes show the predominant trend

You can practise your technical analysis skills on the free demo account without registration withLiteFinance. After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick or advance above the long black candlestick’s open.

upper wick

The thin vertical lines above and below the body are called the wicks or shadows which represent the high and low prices of the trading session. Thanks to history having a habit of repeating itself, a number of time tested common candlestick patterns have How to Read Candlestick Charts been identified. Candlestick charts can be used to create successful and effective day trading strategies and trading decisions.

TheUKBRENT hourly chart displays a bearish engulfing candlestick pattern. Let us explore the situation at the local high of the market trend. A candlestick chart is a technical tool that reflects the dynamics of the price of various financial instruments in the stock, currency, cryptocurrency, and commodity markets.

Bearish Reversal Candlestick Patterns

The chart may look complicated at first, but it’s easy to understand, and we’ll show you how to read them. The upper and lower boundaries of these general price channels indicate historical areas of supply and demand. This means you should start on a relatively higher time frame and work your way down to a relatively lower one. You will be able to make better informed trading decisions when you have a confluence of indicators, suggesting similar things. A price chart is like a window that allows you to view the action in the market. Buyers and sellers move markets based on expectations and emotions .

Each candlestick represents all the transactions in one trading session. The volume of transactions that occurs in shorter sessions cannot be compared to those of longer trading sessions. In this guide, we cover A TON of different candlestick patterns, and obviously, they are too many for you to memorize.

forms of technical

Evening star candlestick patternFirst, the buyers are in control, later the sellers are. The evening star occurs at the top of the uptrend and signals that the uptrend is going to reverse to a downtrend. A crypto line chart of Bitcoin price bubblesWhat are crypto bar charts good for? Crypto line charts only provide the closing prices of a cryptocurrency over time. Therefore, they don’t provide much information on the daily volatility of the market. How forex traders use candlestick charts to analyse market trends.

So in this article, you will learn about how to read a candlestick chart. Commodity and historical index data provided by Pinnacle Data Corporation. Unless otherwise indicated, all data is delayed by 15 minutes.

Day Trading Guide

In the stock market, the price of a share is determined by its demand and supply among other factors. Bar charts and candlestick charts have a similar layout but the candlestick offers a clear advantage o rpart. With the candles being a lot more visual then the bars, the formation and price patterns are much easier to analyse and under what direction the price is heading. The hanging man will occur during an uptrend and is the signal that prices could begin falling. The bearish reversal signal is composed of a small real body, long lower wick and little or no upper wick.

The better trade to have taken would have been to look for short term bottoms to buy dips after the first or second new swing high. This can also be a sign of exhaustion after a recent uptrend in price. Price is price but it can be analysed from different perspectives when viewed historically across multiple time frames. You can get close to the price action or take a step back and see the bigger picture. The data is the same, however and as previously mentioned, the different time frames show more or less detail.

It implies that more traders are looking for selling opportunities, making the asset price decline. Just as with the upper wick, the longer it is the more accurate signal it provides. Long lower wick could be an indicator of a potential reversal to the uptrend. It means that more buying traders are opening positions, thus pushing the asset price higher.


You can get real-time candlestick charts of any stock in your trading platform. A hammer formation at the top of an uptrend is called a Hanging Man and is a bearish signal indicating the end of the uptrend. The long lower wick indicates that the buyers have tried to keep the prices up but the sellers are gaining control. Each candle represents the range of prices during a particular time period. In a 5-min candlestick chart, each candlestick represents a 5 min period; in a 10 min candlestick chart, each candlestick represents a 10 min period and so on. You can understand the trend of a particular stock and also find an appropriate entry/exit point by reading candlestick charts.

This pattern indicates that the selling pressure is cooling, and a bull is on the horizon. Temporary indecision and profit-taking which leads to a bullish candle that is confined within the range of the first candle. The bulls are not giving up and the second candle closes at the same level as the preceding candle. In this chart, you can see a tweezer top pattern formed at the resistance level. The stochastic was also at the overbought level and turned to head downwards.

Bullish three-day trend continuation patterns

The volume and liquidity of an influence the choice of time increments for charting. For example, stock and ETF traders might use 15-minute or hourly intervals to find any developing trends or signs of a price reversal, in one or more trading days. Currency traders, on the other hand, might use the shortest time increments, such as one or five minutes. They do so because so much currency trading is done globally, and a possible trend or reversal may occur in the span of a few minutes. The next important element of a candlestick is the wick, which is also referred to as a ‘shadow’. These points are vital as they show the extremes in price for a specific charting period.

The graveyard doji-pattern looks like an upside-down “T” as the open, and the close is the session’s low. In this scenario, you might consider selling the currency pair and placing a stop loss above the graveyard goji high. You will encounter both doji patterns with long shadows and short shadows. A doji with long shadows tells you that there has been a lot of market volatility but no clear direction. A doji with short shadows tells you there is very little volatility and market indecision. The evaluation of a doji depends on the preceding candles or the trend of the market.

Here are a couple common bullish three-day trend reversal patterns. The close price is the last price traded during the period of the candle formation. If the close price is below the open price the candle will turn red as a default in most charting packages. If the close price is above the open price the candle will be green/blue .

Long-Legged Doji

Once you have trained your eyes on how to read candlesticks, charting will not be such a mundane task as before. You’ll come to the market well prepared and ready to face probabilities. And remember, always be responsible for the results of your market-related decisions and do your own due diligence. This represents the first price bought of the timeframe of your candle.

So, if a candlestick chart for one month with each candle representing a day has more consecutive reds, then traders know that the price is falling. The candlestick chart is sometimes referred to as the ‘Japanese candlestick chart’, due to its history dating back to 18th century Japan. Munehisa Homma, a famous Japanese rice trader, used the first variation of the chart in the rice trading markets and his status and expertise became renowned. It occurs when the opening price and closing price are very close together, but not necessarily at an equal level. It consists of a long upper and lower wick, with a small body due to the opening and closing price being approximately the same. The last candle is bullish, breaching the high and close of the first candle with a large body.

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