Candlestick Patterns are one of the oldest forms for technical and price action trading analysis.
Candlesticks can be used to predict and provide descriptions of the price movements of security derivatives or currency pairs.
Candlestick Charting is composed of lines and bars that have a body. This represents information such as the open, close, high and low prices.
It dates back to 16Th Homma Munehisa traded rice contracts using this method in the 19th century. Also, he was thought to have created the candlestick charts later introduced to Western countries by Steve Nison.
Steve Nison introduced candlesticks to the world in his 1991 book “Japanese Candlestick Charting Techniques,” and they are now very popular because of their simplicity and unique insight into the market’s sentiment.
Candlestick Charts are often used to analyze currency price patterns and equity prices. This post will explain how charts can be used in your own trading.
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Table of Contents
What are you looking for? Candlestick Charts?
Candlesticks are visual representations that show market movements. Traders use candlesticks to help them make better trading decisions by studying patterns that forecast a market’s short-term direction.
A candlestick is a chart showing a time period that shows the opening and closing prices, high and low, respectively, of a security such as a Forex pair. It is a fundamental component of technical analysis because it can help you understand the market’s movement at a glance. This is an excellent technique to trade liquid financial assets like Forex and futures.
What’s the difference between them? Candlestick Charts and bars?
Both candlestick charts and bars can be used to analyze the demand and supply of a commodity or security in a market. They also represent the trading range for a security.
A small tick symbol is used on bar charts to indicate the opening price. On the right side, a tick symbol indicates the closing price.
A candlestick chart has a body, shadows, or what is also known as wicks. The range of the opening and closing prices is defined as a body. Shadows refer to the period outside of the closing and opening of the prices.
As you can see, the bar charts are on the left and the candlesticks on your right.
Mastering Candlestick Charts
Candlestick patterns are an efficient way for you to view an asset’s price chart. It displays how the price changed over a certain period of time, using colors. Also, it shows how far the price has moved during that period.
The time frames you choose or use are displayed. If you have a 5-minute timeframe, a candle will display the HIGH, LOW and OPEN in five-minute intervals.
Bullish Candle and Bearish Candle
Bullish and bullish represent buyers and sellers.
The bulls have an intra-session high and bears have an intra-session low. The bulls will be in control if the close is near the high. The bears will be in control if the close is closer than the low.
A bullish candle means that the price of the stock has increased in the given time frame. It indicates that the price of the candle is decreasing over the given time period. Each fully formed candle shows the price action over a given time period.
Candlesticks come in two parts. A real body and a tail. The open and closing prices refer to the last and first transaction prices for that time period. If the real body wasn’t shown or is too small it will mean that the close and open are almost identical. Real bodies are colorless, but they can be seen on every charting platform.
Real bodies are most commonly colored green, red, white and black. This can be changed to your preference.
If the candle is green or white, it means that the final price was higher than the open price. A black or red candle indicates that the price is down over the period.
Both the bullish and bearish candles reflect the differences between the open- and close-priced periods.
You can adjust your candlesticks visually to be easily identifiable and appealing on most charting platforms.
To create a distinct contrast, you can change the colors in your up- and down candles.
What are some of the Best? Candlestick Chart Patterns?
Bullish Engulfing Candlestick
It’s quite a name for candlesticks. This pattern is made up of two candles. It indicates when a security’s price moves beyond its previous session range. This candle signals a trend change or a sustained upward movement.
One of the most well-known candlestick designs is the Doji candlestick. The Doji candlestick pattern has a small body and a price that is close to the open. It has a long wick that is shaped to the high and lowest. This candlestick gives you an indication that the sentiment might be changing.
Bullish and bearish Harami are two candlestick patterns that can be considered a reversal pattern.
A large bearish candle must be the first candle for a bullish reversal. Then, a small bullish candle should follow.
A bearish harami must have the inverse. First, a strong bullish candle must be followed by smaller bearish candles.
Bearish Engulfing Candlestick
This pattern is the opposite to the bullish-engulfing candle.
This can signal a rapid, sustained decline and a potential trend change to the lower end.
Free PDF Guide: How to Trade Candlestick Patterns PDF Guide Download
Hammer Candlestick The Pattern
After the recent swing lower, the hammer candlestick pattern indicates a possible reversal higher.
The following ingredients are used to make a hammer:
- A small candlestick holder
- A long shadow or wick that points lower
- The candlestick’s top third shows the end of price.
The example below shows how price created a hammer-shaped pattern just before it reversed back higher.
Inside Bar Pattern
The inside bar pattern can be found on all markets and time frames. It is quite common and can be traded in many different ways.
To make an inside bar valid, the candlestick must be completely enclosed within the previous candlestick.
Depending on the place and manner it is formed in the price action, this candle could signal a possible reversal or continuation.
Shooting Star Candlestick The Pattern
Although not as common as other candlestick patterns like the shooting star, it is powerful.
This suggests a possible reversal lower, after the price had been rising higher.
Below is an example of a shooting star and the way price forms a large top wick and small body. The reverse occurs when the price drops again.
Use Advanced Candlestick Patterns
Candlestick charting has a great feature: it allows you to visualize market movements without having to overpopulate your monitor with numbers and complicated indicators.
Because of the candlestick, you can quickly understand what’s going on with a security price at a single glance.
The trend can be used to determine whether sellers or buyers are dominant on a given day. This information is invaluable for traders who want to know when the best time is to buy, wait, or sell.
You can quickly spot patterns in the security’s opening and closing prices once you know how to use and interpret the candlestick basics.
You can then start to use more advanced patterns, such as the hanging-man candlestick pattern, in your trading.
The best thing about candlesticks is the ability to learn more advanced patterns. Although you are most likely to use just one or two candlestick pattern, you can also start to use more advanced patterns such as the. Pattern for the head and shoulders and the 123 reversed pattern.
High Profit Candlestick Patterns
Confluence is the key to high-profit trading strategies, as we will see.
Candlesticks are a great tool for combining with other indicators and strategies. To confirm high probability trades, you can also use other indicators or technical analysis tools.
Candlestick Patterns Trading Strategy
Although there are many options for how candlestick patterns can be combined with other indicators and price-action methods, it is often the most efficient strategy. These strategies include trading with clear trends and trading from key markets support and resistance.
Utilize Candlestick Patterns With the trend
According to the old saying, the trend is your friend until the end. Candlesticks are a great tool for trading. The trend can be used to identify and make high-probability trades.
Once you have identified a trend, you can refine your entry signal by using your favorite candlestick patterns.
The chart below shows an example of how this could be done. In a strong trend downward, price has fallen. Short trades are recommended when price moves higher towards a value area. When price forms a bearish-engulfing bar, signaling a reversal lower, short trades can be entered.
Utilize Candlestick Patterns Key Support and Resistance Levels
You can also use candlesticks to your advantage in trading by using key support or resistance levels.
The price has rejected an important resistance repeatedly in the following example.
We could trade short and profit when the price rises to this resistance level.