WHAT IS A CANDLESTICK CHART?
A candlestick chart is just a chart composed of individual candles, which traders use to know price action. Candlestick price action involves pinpointing where the worth opened for a period, where the worth closed for a period, also because of the price highs and lows for a selected period.
Money Life Research can give traders of all financial markets clues to trends and reversals. for instance, groups of candlesticks can form patterns that occur throughout forex charts that would indicate reversals or continuation of trends. Candlesticks also can form individual formations which could indicate buy or sell entries within the market.
INTERPRETING A CANDLE ON A CANDLESTICK CHART
The image below represents the planning of a typical candlestick. There are three specific points (open, close, wicks) utilized in the creation of a price candle. the primary points to think about are the candles’ open and shut prices. These points identify where the worth of an asset begins and concludes for a specific period and can construct the body of a candle. Each candle depicts the worth movement for a particular period that you simply choose once you check out the chart. If you're watching a daily chart each individual candle will display the open, close, upper, and lower wick of that day.
Open price:
The open price depicts the primary price traded during the formation of the new candle. If the worth starts to trend upwards the candle will turn green/blue (colors vary counting on chart settings). If the worth declines the candle will turn red.
High Price:
The top of the upper wick/shadow indicates the very best price traded during the amount. If there's no upper wick/shadow it means the open price or the close price was the very best price traded.
Low Price:
The lowest price traded is either the worth at rock bottom or the lower wick/shadow and if there's no lower wick/shadow then rock bottom price traded is that the same because the close price or open price during a bullish candle.
Close Price:
The close price is that the last price traded during the amount of the candle formation. If the close price is below the open price the candle will turn red as a default in most charting packages. If the close price is above the open price the candle is going to be green/blue (also depends on the chart settings).
The Wick:
The next important element of a candlestick is that the wick, which is additionally mentioned as a ‘shadow’. These points are vital as they show the extremes within the price for a selected charting period. The wicks are quickly identifiable as they're visually thinner than the body of the candlestick. this is often where the strength of candlesticks becomes apparent. Candlesticks can help traders keep their eye on market momentum and far away from the static of price extremes.
Direction:
The direction of the worth is indicated by the color of the candlestick. If the worth of the candle is closing above the opening price of the candle, then the worth is moving upwards and therefore the candle would be green (the color of the candle depends on the chart settings). If the candle is red, then the worth closed below the open.
Range:
The difference between the very best and lowest price of a candle is its range. you'll calculate this by taking the worth at the highest of the upper wick and subtracting it from the worth at the rock bottom of the lower wick. (Range = highest point – lowest point).
Having this data of a candle, and what the points indicate, means traders employing a candlestick chart have a transparent advantage when it involves distinguishing trendlines, price patterns, and Elliot waves.
HOW TO READ A CANDLESTICK CHART
There are various ways to use and skim a candlestick chart. Candlestick chart analysis depends on your preferred trading strategy and time-frame. Some strategies plan to cash in of candle formations while others plan to recognize price patterns.
Interpreting single candle formations
Individual candlesticks offer tons of insight into current market sentiment. Candlesticks just like the Hammer, meteor, and hanging man, offer clues on changing momentum and potentially where the market prices may trend.
As you'll see from the image below the Hammer candlestick formation sometimes indicates a reversal in trend. The hammer candle formation features a long lower wick with a little body. Its closing pricing is above its opening price. The intuition behind the hammer formation is straightforward, the worth tried to say no but buyers entered the market pushing the worth up. it's a bullish signal to enter the market, tighten stop-losses or close out a brief position.
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