Understanding Basic Candlestick Charts

Understanding Basic Candlestick Charts
Understanding Basic Candlestick Charts

As an investor, it’s important to understand different charts and how to read them. Candlestick charts are a popular type of chart that originated in Japan. They visually represent the size of price moves with different colors, which can be helpful in forecasting the short-term direction of the price. Keep reading to have an understanding basic candlestick charts and how to use them when making investment decisions.

Candlestick Components

As an investor, it’s important to understand basic candlestick charts in order to make informed decisions about your investments. Candlestick charts show the market’s open, high, low, and close price for the day, and the candlestick has a wide part, which is called the “real body.” This real body represents the price range between the open and close of that day’s trading.

When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the close was higher than the open. Traders can alter these colors in their trading platform, and a down candle is often shaded red instead of black, while up candles are often shaded green instead of white. By understanding how to read candlestick charts, you can make more informed decisions about your investments.

Candlestick vs. Bar Charts

As an investor, it’s important to understand the basics of candlestick charts. Candlestick charts show the same information as bar charts, but differently. Candlestick charts are more visual, because of the color-coding of the price bars and thicker real bodies, which are better at highlighting the difference between the open and the close.

Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of the bar charts. But regardless of your preference, it’s important to understand how to read both types of charts. Here’s a quick guide to understanding candlestick charts.

Just above and below the real body are the “shadows” or “wicks.” The shadows show the high and low prices of that day’s trading. If the upper shadow on a down candle is short, it shows that the open that day was near the high of the day. A short upper shadow on an up day dictates that the close was near the high. The relationship between the days open, high, low, and close determines the look of the daily candlestick. Real bodies can be long or short and black or white. Shadows can be long or short.

The above chart shows the same exchange-traded fund (ETF) over the same time period. The lower chart uses colored bars, while the upper uses colored candlesticks. Some traders prefer to see the thickness of the real bodies, while others prefer the clean look of the bar charts. Regardless of your preference, it’s important to understand how to read both types of charts.

Basic Candlestick Patterns

Candlestick charts are a popular tool among investors for analyzing price movements in the securities market. While the patterns that emerge from these charts can sometimes appear random, they can also provide valuable insights into future price movements. There are many types of candlestick patterns, but here is a sampling of some of the most commonly used ones.

It’s important to note that these patterns are not guarantees, but merely tendencies in price movement. Bullish patterns show that the price is likely to rise, while bearish patterns suggest that the price is likely to fall. However, no pattern works all the time, so it’s important to use them as part of a broader investment strategy.

Bearish Engulfing Pattern

Understanding Basic Candlestick Charts

As most investors know, a candlestick chart is one of the most popular ways to follow and analyze market trends. Candlestick charts date back to 18th century Japan, when they were used by rice traders.

There are many different patterns that can be found in candlestick charts, each with their own meaning. One of the most important patterns to note is the bearish engulfing pattern.

A bearish engulfing pattern develops in an uptrend when sellers outnumber buyers. This action is reflected by a long red real body engulfing a small green actual body. The pattern indicates sellers are back in control and that the price could continue to decline.

If you see a bearish engulfing pattern forming in a chart, it’s important to pay attention to the market trend and make sure you are prepared for a potential price decline.

An engulfing pattern on the bullish side of the market occurs when buyers outpace sellers. This is reflected in a candlestick chart by a long, green, real body engulfing a small red real body. With bulls having established some control, the price could head higher.

If you’re just getting started with basic candlestick charting, it’s important to know how to identify this pattern. Here’s a quick rundown of what you need to know about bullish engulfing patterns.

Bearish Evening Star

An evening star is a type of candlestick pattern can indicate the reversal of an uptrend. The pattern is composed of three candles, with the last candle having a small real body that opens below the previous day’s small real body. The evening star pattern can be a good indication for investors to take profits or enter short positions.

Bearish Harami

If you’re just getting started in the world of investing, it’s important to understand some of the basics – like candlestick charts. While there are many types of candlesticks, one that you might see is a bearish Harami.

A bearish Harami is a small real body (red) completely inside the previous day’s real body. This is not so much a pattern to act on, but it could be one to watch. The pattern shows indecision by the buyers. If the price continues higher afterward, all may still be well with the uptrend, but a down candle following this pattern indicates a further slide.

So, if you see a bearish harami on a candlestick chart, it’s important to pay attention to the trend that follows. It could indicate further decline to come.

The bullish Harami is a candlestick charting pattern that shows a potential change in direction from bearish to bullish. The pattern comprises two candles, with the first being a large red candle followed by a small green candle. This pattern occurs during a downtrend and signals that the trend may be ready to reverse.

Investors who understand basic candlestick charting patterns can use the bullish Harami to help identify potential turning points in the markets. This pattern can be a helpful tool for those looking to take advantage of market reversals.

As investors, it’s important to have a firm understanding of basic candlestick charting in order to make informed decisions when trading. One such pattern is the bearish Harami cross. This occurs during an uptrend, where an up candle is followed by a doji (a session where the candlestick has a virtually equal open and close). The doji is within the real body of the prior session. The implications are the same as the bearish Harami. Keep this in mind when analyzing future trends!

Bullish Harami Cross

If you’re just getting started with candlestick charting, you may wonder what all the fuss is about. In a nutshell, candlesticks are a way of representing price data that can provide valuable insights into market trends.

One of the most common patterns you’ll see on candlestick charts is the bullish Harami cross. This pattern occurs in a downtrend, where a down candle is followed by a doji. The doji is within the real body of the prior session. The implications are the same as the bullish harami.

Bullish Rising Three

If you’re just getting started with candlestick charts, one pattern you might come across is the bullish rising three. This pattern starts with a long white day, followed by three small days where the price falls but stays within the range of the first day. The fifth and final day is another long white day. Even though the price is falling for three straight days, a new low is not seen, and the bull traders prepare for the next move up. A slight variation of this pattern is when the second day gaps up slightly following the first long up day. Everything else about the pattern is the same; it just looks a little different. When that variation occurs, it’s called a “bullish mat hold.”

Bearish Falling Three

The Bearish Falling Three pattern is a bearish reversal pattern that starts with a strong down day, followed by three small real bodies that make upward progress but stay within the range of the first big down day. The pattern completes when the fifth day makes another large downward move. This pattern shows that sellers are back in control and that the price could head lower.

Investors who understand basic candlestick charting can use this pattern to help them make better investment decisions. By knowing how to identify this pattern, investors can avoid making costly mistakes and instead focus on making profitable investments.

Candlestick charts are one of the most popular tools that traders use to determine possible price movement. Candlesticks provide four key pieces of information (open, close, high, and low) which can be extremely useful when making trading decisions. Many algorithms used by traders are based on the same price information shown in candlestick charts.

One of the benefits of using candlestick charts is that they can provide insight into investor emotion. By reading the patterns in the chart, traders can get a better sense of whether investors are feeling bullish or bearish about a particular asset. This information can be extremely helpful when making trading decisions.

Investors’ sentiments about the trading of an asset have a significant impact on its movement, as Japanese rice merchants discovered long ago. Candlesticks aid traders in determining the emotions surrounding a stock or other assets, allowing them to make more accurate predictions about where it will go.

Candlestick charting is a valuable tool for traders that can provide insights into market trends and investor moods. The bullish harami cross and bearish falling three patterns are two of the most common candlestick patterns that investors should be aware of. By understanding these patterns, investors can make better trading decisions and avoid costly mistakes.

You can watch a video on understanding the basics of candlestick charts here.

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