Basics of Technical Analysis: Understanding Candlestick Charts, Patterns and Trend
Candlestick charts are technical tools which resemble the bar chart and are used to analyse and predict price movement in the market. A candlestick chart combines multiple data from different time frames in a single candlestick bar, which are used in deciding long and short term trading strategies. The candlestick formations and their names are unique, like Bullish or Bearish Harami, Three Black Crows, and Dark Cloud Cover.
How To Read Candlestick Charts
Candlestick charts offer a valuable visual perception of price. These charts comprise of individual candles which allows traders to pinpoint the opening price and the closing price for a period, along with the highest and lowest price points.
A bullish candle is either green or white, and a bearish candle is red or black. The candle’s rectangle body denotes the open and close price of the day, and wicks or shadows, depict the highest and the lowest prices during the trading period.
Candlestick Chart Patterns
A single bar is called a candlestick and it contains a body and shadows at both ends. It depicts the opening, high, low, and closing in the market. When two or more candlesticks are placed together, they form a pattern and indicate the bearish or bullish reversal.
- Bullish candlestick patterns: In this case, the closing price is higher than the opening price.
- Bearish candlestick patterns: In this case, candlesticks form with real-body and upper and lower shadows.
- Doji patterns: A Doji is formed when the candlestick has almost the same opening and closing values. It can indicate trend reversals but also associate with market indecision.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.