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How to Read Candlestick Charts

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PC monitor showing Candlestick Chart

When you're trading stocks, it's difficult to know what steps to take or where to trade. Particularly for beginners, the whole process can be overwhelming. Tools like candlestick charts, bar charts and point-and-figure charts all help traders in this process. But what if you don't know how to read candlestick charts? We have laid out all of the information you need to feel confident in your chart reading, and subsequently, the trades you make.

What Are Candlestick Charts?


Candlestick charts are tools that are used to help show patterns and trends within markets, highlighting the highs and lows. This can help traders decide the times and the amounts they would like to trade. The charts originated in Japan; it was discovered that there were correlations between the price of rice and the supply and demand of the crop. This was more than one hundred years before the West created the bar and point-and-figure charts.

There are major benefits to candlestick charts. A line chart gives you one data point (usually the close price) for a stock, whereas candlesticks give you five. These include the open price, close price, low price, high price and direction of movement for the stock. This is far more useful when you consider that your trading decisions will be based on price action.

Supply and Demand

Candlestick Charts vs. Bar Charts

How to Read Candlestick Charts


There are a few more things you need to know about how to read candlestick charts before you can understand and appreciate the patterns they form.

Candlestick Parts: The Body

Candlestick Parts: Wicks/Shadows

Using Candlesticks in Trading

Indicating Patterns


A laptop monitor showing a chart

Photo by energepic.com from Pexels

Now that you understand the basics of how to read candlestick charts, it is time to take a look at some pre-defined patterns you can look out for when trading. Traders can often analyze the movement of candlesticks over time even though it might appear random in some areas. Your patterns will be categorized into bullish and bearish.

Bullish indicate that the price is likely to rise where bearing patterns indicate that the price is likely to fall. However, these patterns do not work all the time, and the patterns we are about to show you are merely tendencies in price movements and are not to be interpreted as guarantees.

How to Read Candlestick Charts: Bearish/Bullish Engulfing Patterns

How to Read Candlestick Charts: Bearish Evening Star

How to Read Candlestick Charts: Bearish and Bullish Harami

How to Read Candlestick Charts: Bearish/Bullish Harami Cross

How to Read Candlestick Charts: Bearish Falling Three

Conclusion


A program in a computer

Image by Csaba Nagy from Pixabay

If you want to know how to read candlestick charts, it's necessary to understand all of its parts. This way, you can make smarter, more informed decisions about your stock trading and which markets you want to enter. This will help you to analyze the emerging trends and help you to best capitalize on your investments.

Candlestick charts are not the only information you will need to make smart investments for yourself, but they are a great place to start. There are major benefits to candlestick charts. A line chart gives you one data point (usually the close price) for a stock, whereas candlesticks give you five. These include the open price, close price, low price, high price and direction of movement for the stock. Again, this is far more useful when you consider that your trading decisions will be based on price action.

Featured Image by Csaba Nagy from Pixabay

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