Grab your success in Trading, but first, learn How to Read Candlestick Chart Pattern? Understand Candlisticks from scratch…
Hey, are you shooting in the dark? Sorry I mean are you trading without any technical analysis?. Technical analysis almost depends on its most important inputs, price chart, and volume chart. To analyze volume and price in visual form, we use price charts. And the best form of the price chart is Candlestick Chart.
Now……
What is Candlestick Chart?
The most popular and easier form of the price chart is the candlestick chart, used by maximum traders. The price graph in a candlestick chart is represented in a series of candles, that is why this is term as a candlestick chart.
Candlestick chart carries the trend, volume, bearishness, and bullishness at a quick glance.
This chart conveys green and red candles. These red and green candles give data about closing, opening, and trading prices range in a time period.
The best way to get more and more useful information about a stock is by looking at its price chart. So you must have knowledge about the candlestick charts even if you are a value investor instead of the news and internet.
With the help of a candlestick chart, you can find a suitable entry and exit point and also can understand the trend for a specific stock.
Types of candlesticks
Candlestick chart is made of green and red candles.
Every candle shows a price range during a specific time, like in a 10 minutes candlestick chart each candle shows a time period of 10 minutes, in a 60 minutes chart the candle show 30 min time period, and so on.
Green candle- This means the closing price is higher than the opening price.
Red candle- Means the closing price is lower than the opening price.
Let think you open a 5 minutes candlestick chart of stock at 10:25 am and the price is 100 bucks. Then the price goes down to 98 then a red candle will be formed and if the price goes up to 101 then the green candle will be shown.
Candle Body- The highlighted part of red, green, or any other candle is term as candle body and it shows the closing and opening price.
The opening price is lower body and the closing price is the upper body in a green candlestick.
Similarly, the opening price is upper body, and the closing price is the lower body in a red candlestick.
Candle Wick- The black line shadow or the wick on the upper and lower side of the candle, shows the price range in which the stock had been traded in that time period.
Which Means the highest and lowest price in that time(10 min, 15 min, and anything else)of the candle.
As an example, in a 10 min candlestick chart of a stock, in this time lowest price the stock touched was 140 and the highest was 155,
so the 140 and 155 are the upper-lower wick and the highlighted body will be somewhere between 140 and 155. Maybe 148 and 152, 143 and 149, or anything thing.
Read More: Steps and rules to earn a passive income from stock trading
How to Understand Candlestick Chart
You can find a candlestick chart of any particular stock in your trading platform, just go there and search the stock, then the chart will open.
Just opening a chart is not enough, you need to know how to understand the candlestick chart. Let’s discuss
#1 Understand the time frame
There are different time frames in candlestick charts. If you want to do scalping stock trading, which means you want to enter and exit in trade within a few minutes, then you can use 5-min, 10-min candlestick chart.
As an example, every minute stock XYZ moves 2–3 bucks up and down. You can use a 15-min 0r 5-min candlestick chart to capture this 2–3 bucks price movement.
Similarly, you can use 30-min, 1-hour, 3-hour, or a daily chart to capture a larger price movement.
The x-axis shows time and the y-axis shows the prices, in a candlestick chart. Hence the candlesticks are plotted as per the price range along the time scale.
#2 Know what is a price-action analysis
By reading the candlestick chart, you will get an understanding of the price action.
“Price is God” no really, Price is god because by looking at the price action of a stock today, you can predict its future price range.
In day trading, your profit or loss depends on how much you are better at identifying the stock trend, which means can you predict that whether it will go up or fall down.
And the price action can help you to predict the trend. If the stock seems to go down, it terms a downtrend and it is called an uptrend if goes up.
After identifying the trend of a stock you can trade in that. Buy, if you find it will go up and if it seems to be in a downtrend, short the stock.
Either you can hold it for long or just come out after capturing a good profit. Depends on you.
The real game is about perfect trend predictions, if you are good at this then you can win the game of the stock market, the game of the money-making, and the game of the profits.
7 STEPS TO INVEST IN THE STOCK MARKET
#3 Learn about Bullish and Bearish candles
The stock price movement is influenced by the buyers and the sellers. That means if the sellers are in power the stock is bearish and is bullish if the sellers are in power.
So the bullishness and bearishness of the candlesticks in the candlestick chart depending on the buyers and the sellers.
Candlesticks with full bodies represent the strong selling and the strong buying. That is a red candle and this is a green candle.
If the lower and the upper wick of the candlestick is long then it means the stock is unstable.
Candles with a long lower wick with the body at the upper show that the bulls are in control. Similarly, the body at the lower side, with a long upper wick, this type of candle shows that the bears are in control.
You must need to look at the series of candles to know that the stock is bullish or bearish, you can not know it by looking just at a single candlestick.
#4 understand trends, corrections, and consolidations
A Candlestick chart is a storyteller, which tells the story about the stock price. And if you are good at reading this story, then I swear you are on a win of trade.
1. Trends and Corrections
Stock shows trends if it is continuously going up or down during a period of time. Trends can be for a year, a month, a week, or a day.
But no one stock will always continue going up or down. There will be some time of corrections in which the stock will trend in opposite and then after a while will continue to its original trend.
If this correction continues for a long time, then it will be a sign of the reverse trend.
Look at the entire candlestick chart to see the sign of the end of a trend. Look the trend appear as a wave
For example, in an upward trend, a series of bullish candlesticks will be there, and then some red candlesticks or correction candles. And there will be again a bullish candlestick series.
The longer the wave means stronger the trend. And the short waves signs for the trend close or trend exhaustion.
As an example, the Indian pharmacy leader opens at 942 bucks that are 3% above the previous close, and then it was running up till it hit 948, then corrects and comes to 943.90.
At the end of the trend, it closes at 953. The stock was on an uptrend and the return to 943.90 was a temporary correction.
2. Consolidation
In the consolidation phases, the price moves in a short range and does not gives chances to make a profit.
In the phases of consolidation, neither the buyer nor the sellers are in control. Once one side takes control and then the second. Both of these lose control by a breakout(can be the beginning of a new trend).
As an example, the stock of Dhunseri Ltd opens at 390 and then uptrends to 393. Then downtrends to 389 and trades in the narrow range of 389–392 and then finally close at 391. Here the stock is said to be in “consolidation”.
Thanks, and I will explain all 24 candlestick chart patterns in the next article.
