There are various methods to read a stock or commodity chart, mostly for the price-action analysis. In this blog, we shall focus on the Candlestick patterns to analyze a trading chart.
Thomas Bulkowski’s Encyclopedia of Candlestick Charts explains about one hundred and three candlestick patterns, including both bullish and bearish versions. Here we are trying to simplify the candlestick patterns to help you get a basic idea of reading the price/action charts.
Japanese invented the Candlestick patterns. They used this method in wars and then trade in rice futures. Later this approach was introduced in the western markets and got famous due to its easiness in reading charts compared to other methods. One can use the candlestick patterns to detect and confirm key price formations, retracements, reversals, breakouts, and fakeouts. For instance, candlesticks help determine and distinguish between reversals and retracements.
List of Candlestick parameters:
Candlestick for the day is formed using the above four parameters, and candlestick provides a clear view of the day which no other charts like the line charts or bar charts cannot provide.
The basic structure of Candlestick:
The wider part of the candlestick is the “real body.” It helps the investors know if the closing price was higher/lower than the opening price. When the stock closes lower, the color will be black/red, and if the stock closes higher, it is white/green.
When Close of the day is greater than the Open of the day!
The green color in the body is used to symbolize the Bullish candlestick, which indicates bullishness.
When the Close of the day is less than the Open of the day!
The red color in the body symbolizes the Bearish candlestick, which indicates bearishness.
When the Close of the day is the same as the Open of the day!
Doji candlestick does not have a body as both the “close” and “open” are the same, and it indicates the indecision or confusion among the traders.
Consider exploring the candlestick formations on the trading chart of an asset for further verification. For instance, you want to execute a long trade after researching a trading chart, but observed that a Doji candlestick. Which means, you should reassess your judgment and await further advancements before proceeding.
Read More about what to look for in candlestick charts?