Candlestick Charts

If we extrapolate a similar trajectory to the forming of the most recent peak, we can see that price is currently at about the midpoint. This is because we expect the coming peak to surpass that of the late 2019 peak in price, or else our hypothesis would be proven incorrect. You can make this as simple or complicated as you please, but I’m going to outline a simple example here, with some more complex ideas to follow. Benzinga provides the essential research to determine the best trading software for you in 2022.

candlestick reading

In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. Candlestick charts can be an important tool for the trader seeking an investment opportunity over a long timeframe.

Doji Candlestick

After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. Whereas a security can decline simply from a lack of buyers, continued buying pressure is required to sustain an uptrend. Therefore, a doji may be more significant after an uptrend or long white candlestick. Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick’s open. After a long white candlestick and doji, traders should be on the alert for a potential evening doji star.

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. If the next candle fails to make a new high then it sets up a short-sell trigger when the low of the third candlestick is breached. This opens up a trap door that indicates panic selling as longs evacuate the burning theater in a frenzied attempt to curtail losses. Short-sell signals trigger when the low of the third candle is breached, with trail stops set above the high of the dark cloud cover candle. 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.

What is a bull wick?

A close above an open indicates bullish market sentiment, and this is denoted by a green candle. Such a candle is called a bull candle. A close below an open indicates bearish market​ sentiment. … Market sentiment is also denoted by the wicks.

It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary. Experience our trading platform for 90 days, risk-free. Trade 4,500+ global markets including 80+ forex pairs, thousands of shares, popular cryptocurrencies and more. In this case, the long top wick shows that the bulls were attempting to continue pushing prices up, but they weren’t able to keep prices high above the opening for the duration of the session. Second, they can give you accurate entry points at support and resistance levels. There are two ways wicks can help you in your analysis and trading.

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However even a basic understanding of how to read and recognize these patterns can help give traders price action insights to help plan their next moves. In the default setting, most candlesticks consist of a red or green body; however, on the Nadex platform, these colors can be configured to match each Credit default swap trader’s visual preference. In addition to the body of the candlestick, there is often an upper and lower shadow. Find out more about candlestick charts, what they are, how to read them, and how to use them to become a better trader. The dragonfly doji has no real body with a long wick to the bottom.

Candlestick charts are an effective way of visualizing price movements invented by a Japanese rice trader in the 1700s. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result.

candlestick reading

Some patterns in the price movements of stocks constantly replicate. The study of these patterns helps predict the future direction of prices, and it is called candlestick analysis. In addition, the book also discusses how the candlestick technique builds a simple mechanical trading system and eliminates emotional interference, gluttony, and panic.

How To Read Candlestick Charts?

He saw that there was a correlation between emotion and supply and demand. Shows you candlestick charting, one of the most popular tools in technical analysis. This book explains all candlestick patterns for complete beginners. Hedge Focus is put on the cause and market behavior that result in patterns. The names are also given according to conventional technical analysis. The book also teaches the practical application of candlestick pattern knowledge.

  • You’ll come across them as you advance in your trading and investing journey.
  • The distance between the high and low of the candle is called the range of the candlestick.
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Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, focus turns to the evidence of buying pressure and a potential bullish candlestick reading reversal. After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal. Candlestick charts are a visual aid for decision making in stock, foreign exchange, commodity, and option trading.

Hanging Man Candlestick

However, since this technique of price charting uses average price data, patterns can take longer to develop. Bearish/bullish engulfing – engulfing patterns that indicate a reversal in market conditions and illustrate that one trend is being overpowered by the other in the opposite direction. Candlestick charting is one of the most common methods of plotting and analyzing price patterns. They were invented by a Japanese rice merchant named Monehisa Homma in the 1700s, 100 years before the West developed the bar and point-and-figure charts.

How do you predict if a stock will go up or down?

If the price of a share is increasing with higher than normal volume, it indicates investors support the rally and that the stock would continue to move upwards. However, a falling price trend with big volume signals a likely downward trend. A high trading volume can also indicate a reversal of trend.

Candlesticks build patterns were introduced to the Western world by Steve Nison in his popular 1991 book, “Japanese Candlestick Charting Techniques. Expert market commentary delivered right to your inbox, for free. Thanks to all authors for creating a page that has been read 48,288 times. WikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 96% of readers who voted found the article helpful, earning it our reader-approved status.

How To Draw A Candlestick Chart

It appears at the end of an uptrend after there has been an enormous unstable momentum. It is a reversal pattern that provides a strong signal which indicates a take-profit action. This pattern suggests that there is an increase in the price of a commodity due to the influx of sell orders. The upper part of the candle wick is long while the lower part of the candle is small.

Some beginner traders may recognise the bullish setup and enter a buy order at this point. Professional traders, on the other hand, will probably be waiting for the proper confirmation to enter the trade. Doji candlesticks that have both long upper and lower shadows indicate that there is a lot of indecision in the market. Note that the market price is going up if the candlestick is green or blue.

A price action analysis is useful as it can give traders an insight into trends and reversals. For example, groups of candlesticks can form patterns throughout forex charts and diagrams that could indicate reversals or continuation of trends. Candlesticks can also form individual formations, which could indicate buy or sell entries in the market.

Trading 101: How To Read And Analyze Candlestick Chart Pattern In Day Trading

While a simple Candlestick pattern, like the Hammer, requires a single Candlestick, the more complex Candlestick patterns usually require two or more Candlesticks to form. The close is the last price traded during the candlestick, indicated by either the top or bottom of the body. Candlesticks that close lower are often filled in as a black or red-colored candlestick. It indicates the reversal of an uptrend, and is particularly strong when the third candlestick erases the gains of the first candle. Sure, the stock still comes down sometimes and forms a valley , but each successive peak and valley are higher than the last.

How can you tell if a candle is bullish?

When you see three consecutive hollow candlesticks, you will recognise the bullish three line strike. Each candle will have closed higher than the candle before it. Following this pattern you may see a large red candle that opens higher and closes below the opening of the first candle.

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. The upper and lower shadows on candlesticks can provide valuable information about the trading session. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close.


While candlestick charts could be used to analyze any other types of data, they are mostly employed to facilitate the analysis of financial markets. Used correctly, they’re tools that can help traders gauge the probability of outcomes in the price movement. They can be useful as they enable traders and investors to form their own ideas based on their analysis of the market. Most simply, candlestick charts are used by traders to represent the price evolution of an asset.

What are the three major bullish candlestick patterns?

(ENB) shows three of the bullish reversal patterns discussed above: the Inverted Hammer, the Piercing Line, and the Hammer.

Over the years, Japanese traders had developed various Candlestick patterns based on historical price movements. Every trader should invest their time and learn these patterns as it will provide a deeper knowledge and understanding of reading forex charts in general. Candlestick patterns can help you interpret the price action of a market and make forecasts about the immediate directional movements of the asset price. A hanging man candlestick looks identical to a hammer candlestick but forms at the peak of an uptrend, rather than a bottom of a downtrend.

On a Japanese Candlestick chart, a harami is recognized by a two-day reversal pattern showing a small body candle completely contained within the range of the previous larger candle’s body. This formation suggests that the previous trend is coming to an end. The smaller the second candlestick, the stronger the reversal signal. On a non-Forex chart, this candle pattern would show an inside candle in the form of a doji or a spinning top, that is a candle whose real body is engulfed by the previous candle. The difference is that one of the shadows of the second candle may break the previous candles extreme.

Author: Justin McQueen