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I don’t know about you but I find candlesticks very fascinating.
Without even asking for it, candlesticks will help you: –
- Identify trading patterns.
- Give you a more detailed description of the occurrences and happenings in the market.
- Help you understand the sentiment of other investors.
- And, as if those 3 benefits aren’t enough, candlesticks will help you pick reversal patterns which cannot be seen on any other types of charts.
But that’s not all. You can also use candlesticks to predict market trends, estimate market turning points and determine if the market is bearish or bullish.
Before I get ya’ll so exited to the point of forgetting your name, let’s try to understand what candlesticks are and why they should be your preferred charts at any point in trading.
What are Candlesticks?
Candlesticks are a type of price charts used in trading to displays the high, low, open, and closing prices of a security for a specific period.
They originated in Japan over 100 years ago – where a Japanese man named Homma used them to create a correlation between trading and emotional influence as a drive either causing the market prices to rise or fall. In a short term.
Why do Candlesticks Keep Changing Color and Sizes?
Candlesticks change in size and colors to show trend, strength of trend and the direction of the market at any given point.
Still on that point, you will sometimes notice candlesticks forming fully – those fully formed candles represent a fully bullish trend.
Second to that is the hammer – second most bullish in an upward trend.
Then there is a normal bullish – sometimes also called a spinning top.
The forth bullish in that order being the Doji – forecasting a neutral bullish trend. With the least bullish in an upward trend being the inverted hammer.
In today’s charts, bullish trends are denoted by green candlesticks.
On the other hand, bearish trends are denoted by red candlesticks. And unlike in bullish trends, the inverted hammer shows a stronger bearish trend than the hammer.
Below is an image of candlestick sizes and what they really mean.
Ideally, a single/complete candlestick will show you the highest price for the day, the open or closing price (both bullish and bearish) the body (often the largest part of the candlestick and the lowest price for the day.
To put everything into perspective, this is how a complete candlestick looks: –
Understanding Basic Candlestick Patterns.
To better understand candlestick patterns, you first need to understand what: – a Doji is, a Harami and a Marubozu.
If you ask me,
A Marubozu often refereed to as a shaven candlestick is a candlestick without any shadow.
On the other hand, an Harami, meaning pregnant – is a a candlestick pattern formed by two candlesticks which include: – the mother (the big one) and one small baby (the smaller candlestick. Hence the name, Harami.
The third type of candlesticks which you may also notice on your chart is the Doji.
Often formed unskillfully without the body.
Below is an image describing the types of candlestick patterns with emphasis on shapes.
Possible Candlestick Patterns You’ll Come Across on a Daily Basis.
How should you use candlesticks to pick a trend while trading?
Tell you what, we will discuss that in our next article.
Do you have a trading account already?
How about you register on Olymp Trade to see these patterns.