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There is no doubt that you are either crypto or forex trader who is willing to expand his knowledge on candlestick charts. So, bear in mind that you have come to the right place. Today, in this article, I would like to share my little knowledge with you on how to read candlestick charts.
This article would be divided to four headlines as outline below in the table of content.
💡Table of Content
What is a Candlestick Chart?
A candlestick chart is a chart that is made up from individual candles. The candlestick charts can be used by traders to analyze and understand the market price action, such as where the price open and close, it can also be used to understand the high and low of the price for a specific period of time.
The candlestick chart is initially innovated by a Japanese rice farmer known as Homma. Homma figure out that, there is a relationship between the rice price, and it's demand and supply. At the end, Homma concluded that, the market is controlled by the trader's emotion. This conclusion leads him to the innovation of the candlestick charts.
The candlestick chart shows the trader's emotion by representing it using different colours and patterns. As a trader, you can use candlestick charts to understand where the market price is going and make a decision to open or close an order.
Components of the Candlestick.
A single candlestick is made up of four major components, as briefly explained below:
(1) Real body:- the real body is the widest part of a candlestick. The function of the real body in a candlestick is to visually represent the price range between the closing price and the opening price of a single candlestick.
Normally, the real body is filled with a black colour, or it may be found unfilled and colourless. If the real body is filled with a black colour, It indicates that the closing price for that candle is lower than the opening price. Therefore, there is a price fall in that particular candlestick.
Alternatively, if the real body is unfilled or found colourless, it indicates that the closing price for that candle is higher than the opening price. Therefore, there is a price raise in that candlestick.
(2) The wick:- the wick of a candlestick can also be called the shadow. The wick is the second most important component of a candlestick. It's the thinner part of a candlestick, it's found at the upper and lower part of each candlestick.
(3) open price:- when forming a new candlestick, the first price traded for that candlestick is the open price. When the price increases, the candle will turn green or blue, depending on your chart setting. If the price fall, the candle will turn to red colour.
(4) Close price:- on every candlestick, the last price traded is the close price. When the price changes, the candle will turn to green or red depending on whether the close price is higher or lower than the open price respectively.
The Basic Patterns of a Candlestick Chart.
As you already know, candlesticks are formed due to price movement. They sometimes appear random and sometimes form a regular pattern. This regular pattern can be used by traders to analyze the market for trading purpose.
Nowadays, there are many candlestick chart patterns, out of which we figure out some basic patterns for you to get started.
(1) Bullish Engulfing Candlestick Chart Pattern.
The bullish engulfing candlestick chart pattern can be recognized in a bullish market when a long green real body engulfed a short red real body. This indicates that the price could go higher.
(2) Bearish Engulfing Candlestick Chart Pattern.
The bearish engulfing candlestick chart pattern can be recognized in a bearish market, when a long red real body engulfed a short green real body. This pattern indicates that the sellers seize the market control and therefore, the price could fall.
(3) Bullish Harami Candlestick Chart Pattern.
If saw the bullish harami formed in a candlestick chart, don't take decision, wait and see whether the price will go up or down.
If the price goes up, you were good to go because, it will probably be raising provided that the chart pattern is not destroyed.
(4) Bearish Harami Candlestick Chart Pattern.
This indicates that the market has stopped. Don't take a decision, wait and see the market direction, and take decision as discussed in the bullish harami candlestick chart pattern section.
(5) Bullish Harami Cross Candlestick Chart Pattern.
The bullish harami candlestick chart pattern affect the market in the same way the bullish harami does. So, don't take a decision and wait for the market to predict its direction.
(6) Bearish Harami Cross Candlestick Chart Pattern.
The bearish harami cross candlestick chart pattern affect the market in the same way bearish harami does. So, don't take a decision and wait for the market to predict its direction.
(7) Bullish Raising Three Candlesticks Chart Pattern.
When this candlestick chart pattern is observed in a candlestick chart, it shows that the market price will probably go up and become bullish.
(8) Bearish Falling Three Candlesticks Chart Pattern.
When this pattern is noticed in a candlestick chart, it indicates that the sellers seize the market control. Therefore, the price will probably fall down.
Conclusion
To sum up everything that has been stated so far in this article, candlestick chart plays a great role in both crypto and forex market.
I hope this article on how to read candlestick charts helps you to read and interpret candlestick chart for efficient trading.
Also read: How to trade on Binance.US
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