Easy Ways to Read a Candlestick Chart: 12 Steps with Pictures

How to Read Candlestick Charts

It is important for traders to be direction agnostic, as a trader has the potential to make a profit irrespective of whether the market is rising or falling. Entering a position when the market is falling is known as going short. A trader would usually only initiate a short position when a market trend has reversed from an uptrend to a downtrend. Traders most commonly use shorting positions to short stocks within the share market. A long wick on either side of the candlestick indicates strong rejection of a price level by the market. The very concept of candlestick charts used in forex trading comes from Japanese rice farmers in the 18th century.

How to Read Candlestick Charts

This means the market can easily reverse in the opposite direction due to a lack of interest around the price level. It tells you the buyers are willing to buy at higher prices and the sellers are unable https://www.bigshotrading.info/ to push price lower . You’ll notice larger bodied candles that move in the direction of the trend. Because the price closed near the lows of the range and it shows you rejection of higher prices.


Within the interval, the body informs you of the opening and closing prices of the market. A candlestick chart reflects a given time period and provides information on the price’s open, high, low, and close during that time. The three white soldiers also close above the previous candle’s high. There are some basic candlestick chart patterns that can help anyone, especially beginners, better understand what’s going on in the market.

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  • The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks, but with small bodies and long upper shadows.
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  • The choices are based on recurring patterns that assist in predicting the short-term movement of the price.
  • The bullish harami depends on the initial candles to show the continuation of a descending price trend and that the bearish market is trying to push the prices down.
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  • So, being able to read candlestick charts is vital to almost any investment style.

In order to read a candlestick chart, figure out what each different part of a candlestick tells you then study the different shapes to learn about market trends. Once you master the basics of reading candlestick charts, you potentially can start integrating them into your preferred trading strategy for better accuracy. To use the insights gained from understanding candlestick patterns and investing in an asset, you require a brokerage account.

Bullish Candlestick

The opposite is true for the bullish pattern, called the ‘rising three methods’ candlestick pattern. It comprises three short reds sandwiched within the range of two long greens. The pattern shows traders that, despite some selling pressure, buyers are retaining control of the market.

How to Read Candlestick Charts

You’ll get $50,000 in virtual funds to try out trading CFDs on forex, shares, indices, cryptocurrencies, and more. Doji and spinning top patterns are neutral, while the others are reversal. Let us study the parts of each candlestick, shown in the figure below. Try not to anticipate How to Read Candlestick Charts that a pattern is going to be created by trading before the formation is complete. Abundantly for the knowledge you are passing to others freely. Your great books, Price action trading secret and Candlestick chart has impacted positively into my trading acknowledge.

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The ideal price location of the shooting star pattern is at the end of an uptrend. Therefore, you should always look out for thesupport and resistance levelin the chart. Moreover, it would help if you considered the market context and the overall environment to increase success odds.

Open a CAPEX demo to trial your chart pattern strategy with $50,000 in virtual funds. It was invented by Japanese rice merchants centuries ago and become the dominant charting style since they were first introduced to the West by analyst Steve Nison in 1989. For more information regarding the trading conditions, please click here. Determine whether the market is trending up, trending down, or not trending at all. Choose the first date in your chart to use your server-side script as the base date. Then, to obtain the x-values for each date, apply the date difference function with regard to this base date.

Where did the candlestick charting technique and analysis originate?

The top or bottom of the candlestick body will indicate the open price, depending on whether the asset moves higher or lower during the five-minute period. If the price trends up, closing higher than it opened, the open is represented by the bottom of the body, and the close is represented by the top. If the price trends down, closing lower than it opened, the open is represented as the top of the candlestick and the close is represented as the bottom. Candlesticks that close higher are often filled in as either a green or a white-colored candle. Candlesticks that close lower are often filled in as a black or red-colored candlestick. For example, if the trader set the time frame to five minutes, a new candlestick will be created every five minutes. For an intraday chart like this one, the open and close prices are those for the beginning and end of the five-minute period, not the trading session.

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