How to Read a Candle Chart for Stocks

Intraday trading is a method of investing in stocks where the trader buys and sells stocks on the same day without any open positions left by the cease of the solar day. Hence, intraday traders endeavor to either purchase a share at a low price and sell it higher or short-sell a share at a high price and buy it lower within the same day. This requires a proficient understanding of the market place and relevant information that can help them make the correct decisions. In the stock market place, the price of a share is determined by its demand and supply amid other factors.

Tools such as candlestick chart patterns offer great assistance to traders. We will talk about these Candlestick Charts and offer steps to assist you read them.

What are Candlestick Graphs/Charts?

Candlesticks are a visual representation of the size of cost fluctuations. Traders utilize these charts to identify patterns and gauge the well-nigh-term direction of price.

Composition of a Candlestick Chart

This is how a candlestick chart design looks like:

As you lot can come across, there are several horizontal bars or candles that course this nautical chart. Each candle has three parts:

1. The Torso
2. Upper Shadow
3. Lower Shadow

Also, the trunk is colored either Red or Light-green. Each candle is a representation of a time period and the information corresponds to the trades executed during that flow.

A candle has four points of information:

1. Open – the first trade during the menstruum specified by the candle
2. High – the highest traded price
3. Low – the lowest traded toll
4. Close – the last trade during the period specified by the candle

How to Analyse Candlestick Chart

The body of the candle represents the opening and endmost price of the trading done during the catamenia. Knowing this is of import for candlestick trading. Hence, traders can run across the toll range of the said stock for the said period at a glance. Also, the color of the trunk tin tell them if the stock price is rising or falling. So, if a candlestick chart for ane month with each candle representing a day has more consecutive reds, then traders know that the cost is falling.

Above and below the body are vertical lines called wicks or shadows that prove the lows and highs of the traded price of the stock. Here is a scenario:

• If the upper wick on a red candle is brusk, then it indicates that the stock opened near the loftier of the day.
• On the other mitt, if the upper wick on a green candle is short, then it indicates that the stock closed near the high of the day.

Hence, a candlestick graph displays the relationship between the high, low, opening, and closing price of a stock. The torso can be long or short and red or green. Also, shadows can be long or short. A combination of these displays the sentiment of the market towards the said stock. These details are important to know to understand how to read a candle chart.

Candlestick Chart Patterns

Candlestick charts are an splendid mode of understanding the investor sentiment and the relationship between demand and supply, bears and bulls, greed and fear, etc. Traders must retrieve that while an individual candle provides sufficient information, patterns can exist adamant just by comparing one candle with its preceding and side by side candles. To benefit from them, it is important that traders understand patterns in candlestick charts. For better understanding permit's divide the patterns into 2 sections:

1. Bullish patterns
2. Bearish patterns

Both patterns are essential for candlestick nautical chart assay.

Bullish Patterns

Hammer pattern

This is a candle with a short trunk and a long lower wick. Information technology is commonly located at the bottom of a downward trend. It indicates that despite selling pressures, a potent buying surge pushed the prices upward. If the torso is green, it indicates a stronger balderdash market than a red body.

Inverse Hammer design

This is a candle with a curt body and a long upper wick. It is usually located at the bottom of a downward trend too. It indicates buying pressure followed by selling pressure level. It also indicates that buyers will soon take command.

Bullish Engulfing design

This is a blueprint of two candlesticks where the start candle is a short red one engulfed by a large green candle. It indicates a bullish market that pushes the price upwards despite opening lower than the previous solar day.

Piercing Line design

This is a two-candle blueprint having a long red candle followed by a long greenish candle. Also, the closing price of the 2d candle must exist more one-half-style upwards the torso of the kickoff candle. This indicates strong buying pressure.

Morning Star pattern

This is a 3-candle pattern that has one candle with a curt body between one long red and a long green candle. There is unremarkably no overlap between the brusque and the long candles. This is an indication of the reduction of the selling pressure and the onset of a bull market

Three White Soldiers design

This is a three-candle blueprint that has three green candles with small wicks. These candles open and shut college than the previous twenty-four hours. After a downtrend, this is a strong indication of an upcoming bull trend.

Bearish Patterns

Hanging Homo pattern

This is a candle with a short body and a long lower wick. It is unremarkably located at the acme of an upward trend. It indicates that the selling pressures were stronger than the buying thrust. It as well indicates that bears are gaining control of the market.

Shooting Star pattern

This is a candle with a short trunk and a long upper wick. Information technology is usually located at the summit of an upwards trend too. Unremarkably, the market opens higher than the previous day and rallies a bit before crashing like a shooting star. It indicates selling pressure taking over the marketplace.

Bearish Engulfing pattern

In candlestick chart analysis, this is a pattern of two candlesticks where the start candle is a short green one engulfed by a large cherry-red candle. It ordinarily occurs at the top of an upward trend. It indicates a slowdown in the market ascension and an upcoming downtrend. If the crimson candle is lower, the downtrend is usually more than meaning.

Evening Star pattern

This is a three-candle pattern that has one candle with a curt torso between one long red and a long greenish candle. There is normally no overlap between the short and the long candles. This is an indication of the reversal of an upward trend. This is more than significant if the third candle overcomes the gains of the first candle.

Three Blackness Crows design

This is a iii-candle design that has iii consecutive red candles with brusk wicks. These candles open up and close lower than the previous twenty-four hour period. After an upward trend, this is a strong indication of an upcoming bear market.

Chart patterns are an important component of how to read a candle chart. There are several other patterns that can exist followed to sympathize trends and sentiment of the markets. Yous tin can consider this blog as a starting betoken to understand how to analyse candlestick nautical chart and dive deeper into these patterns to understand market movements.

Happy Investing!

stewartmilive.blogspot.com

Source: https://groww.in/blog/how-to-read-candlestick-charts

Share this post