How To Read Candlesticks Beginner’s Guide Thomas Kralow Blog

How to Read Candlestick Charts

If there is no upper wick/shadow it means that the open price or the close price was the highest price traded. The period that each candle depicts depends on the time-frame chosen by the trader. A popular time-frame is the daily time-frame, so the candle will depict the open, close, and high and low for the day. The different components of a candle can help you forecast where the price might go, for instance if a candle closes far below its open it may indicate further price declines. For technical analysis to be carried out, prices need to be represented graphically on a chart.

  • The relative strength index (RSI) is used to evaluate if an asset is being overbought or oversold by measuring the magnitude of recent changes in price.
  • This contrast of strong high and weak close resulted in a long upper shadow.
  • Candle patterns can be single, double or triple patterns that consist of one, two or three candles respectively.
  • It is an indication that it could be the end of a currency pairs established weakness.
  • Traders often rely on Japanese candlestick charts to observe the price action of financial assets.
  • SMA shows the average price of candles during a certain time you choose.

The candlestick range is defined by the extreme high of the top wick above the body and the extreme low of the bottom wick. The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken.

What are bearish and bullish candles?

They are the basis for all traders and some investors that want a grasp on the technical aspect of a company. The candlestick chart represents the market structure of a stock that should hold or potentially reverse. White marubozus are similar to their black counterparts, but they indicate that prices are being controlled by buying pressure. These are rectangular blocks with very little or virtually no shadows at the top or bottom.

Candlestick charts present the technical analyst with a visual snapshot of the market. Eventually, with time and experience, you can quickly analyse market conditions and make a trading decision through technical analysis. For example, a bullish engulfing pattern reflects when the bulls take control. Candles can be created for virtually any market you wish, and nearly every charting platform available offers candlestick charts. Candlestick charts offer traders an easy way to track the price movement of a specific security during a specified period.

Hammers and Hanging Men

Harami means pregnant in Japanese; appropriately, the second candlestick is nestled inside the first. The first candlestick usually has a large real body and the second a smaller real body than the first. The shadows (high/low) of the second candlestick do not have to be contained within the first, though it is preferable if they are. Doji and spinning tops have small real bodies, meaning they can form in the harami position as well.

  • He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses.
  • The high price during the candlestick period is indicated by the top of the shadow or tail above the body.
  • The hammer pattern has a small or non-existent upper shadow, indicating that that the closing price is at the top of the candlestick, and the lower shadow is extra-long.
  • If the price trends down, closing lower than it opened, the open is represented as the top of the candlestick (not including the wick) and the close is represented as the bottom.
  • 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”).

You can practice reading candlestick charts by opening a demo trading account or playing around with candlesticks on free web-based charting platforms. Set the chart type to candlestick, and select a one-minute time frame so you’ll have lots of candlesticks to look at. The top or bottom of the candlestick body will indicate the open price, depending on whether the asset moves higher or lower during the five-minute period. If the price trends up, closing higher than it opened, the open is represented by the bottom of the body, and the close is represented by the top. If the price trends down, closing lower than it opened, the open is represented as the top of the candlestick (not including the wick) and the close is represented as the bottom.


Blending the candlesticks of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long, upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing, and Dark Cloud Cover Patterns require bearish confirmation. A morning star serves as a ray of hope in an austere market downtrend.

How to Read Candlestick Charts

It is a simple and easy process to set up an account with us to start candlestick trading. Such analysis using non-price information is known as fundamental analysis. Also, many brokerages offer candlestick charts free as part of the complementary platforms they provide. The open and close prices are the first and last transaction prices for that time period. When there is no real body or the real body is very small, it means the open and close prices were the same or almost the same. According to Steve Nison, candlestick charting first appeared sometime after 1850.

Hammer Candlestick Family

This information can be used to make high-profit and low-risk trades. The resistance level is where the price of the asset usually stops rising. After it happens several How to Read Candlestick Charts times, we can define the resistance line. If the buying momentum is still stronger, the price will rise more, breach the resistance level and create a new one.

How to Read Candlestick Charts

Candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first. Doji candlesticks typically contain longer wicks with shorter-to non-existent bodies, resulting in a candle that looks more like a plus sign. They indicate high volatility in the market that closed almost where it started. It consists of a bearish candle followed by a bullish candle that engulfs the first candle. If the price of the asset breaks out above the upper trend line before the lines converge, technical traders typically expect the asset to reverse and trend higher.

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