Candlesticks are one of the most popular ways to trade the financial markets. They provide a clear and concise way to view price action and can be used to make informed trading decisions.
However, many traders find candlesticks confusing or difficult to interpret. In this article, we will look at some simple tips that will help you understand candlestick pattern quickly and easily.
1. Pay attention to the open and close prices
The open and close prices are the most important price levels on a candlestick chart. These prices represent the opening and closing of a trading period and can give you valuable information about market sentiment.
If the candlestick is bullish (the price closed higher than it opened), the open price is the bottom of the body, and the close price is the top. This shows that buyers were in control during the period and were able to push prices higher.
Conversely, if the candlestick is bearish (the price closed lower than it opened), the open price is the top of the body, and the close price is the bottom. This shows that sellers were in control during the period and were able to push prices lower.
2. The size of the candlestick body is important
The size of the candlestick body can give you information about the strength of market sentiment. A large candlestick body indicates strong buying or selling pressure in the market. Conversely, a small candlestick body indicates weak buying or selling pressure.
3. Pay attention to the candlestick wicks
The wicks on a candlestick chart show the highest and lowest price levels during the trading period. These price levels can give you valuable information about market participants buying and selling pressure.
If the candlestick has a long upper wick, there was intense selling pressure during the period, but buyers were able to push prices back up towards the close. This indicates that there is still a bullish sentiment in the market.
Conversely, if the candlestick has a long lower wick, there was intense buying pressure during the period, but sellers were able to push prices back down towards the close. This indicates that there is still a bearish sentiment in the market.
4. Look for patterns in the candlesticks
Candlesticks can often form recognizable patterns that give you information about the future direction of prices. Common candlestick patterns include the hammer, inverted hammer, shooting star, and Doji.
In conclusion, candlesticks are a valuable tool that every trader should understand. You can get a good idea of market sentiment by paying attention to the open and close prices, the size of the candlestick body, and the candlestick wicks.
