How To Read Candlestick Charts Like A Pro

As you may already know, Candlestick charts were invented and developed in the 18th century. The key to reading candlesticks is to understand the candle body length and fill. A long hollow body means the stock price surged on a greater demand. A long-filled body means a strong fall in stock price on increased selling. Long wicks mean that there was an extreme high or low that failed indicating a short-term trend reversal. A bearish evening star pattern, also known as a topping pattern, occurs when the last candle in the pattern opens below the previous day’s small real body, which is either red or green.

learn to read candlestick charts

Conversely, with a red candle, the upper edge represents the opening price and the lower edge indicates the closing price. Candlestick charts have become the preferred chart form for many traders using technical analysis. Even if you’re not a day trader, candlestick charts can give you a lot of useful information about potential investments. Now that you’ve already learned about them, all you need to do is find some and practice reading them.

Table of Contents

How To Read A Candlestick Chart

Professional traders, on the other hand, will probably be waiting for the proper confirmation to enter the trade. Reading candle charts becomes a lot like those pictures back in the day where you would have to adjust your eyes to see the picture within the picture. Stock patterns give you a tremendous leg up on getting a good entry and exit on your trades. They are what most experienced traders rely on when trading, which is great encouragement because we are all playing with the same deck of cards.

learn to read candlestick charts

Always double-check the settings or the color key for the app or platform you are looking at the charts in. In the second trade, the Three White Soldiers Candlestick pattern emerged near the bottom of this downtrend. At this point, professional traders for preparing for the market Currency Risk to reverse the prevailing downtrend. In figure 5, we can see two different Candlestick patterns triggering two different trades. On the first occasion, the Engulfing Bearish Candlestick pattern appears during a downtrend that provides traders with a trend continuation signal.

Bearish Engulfing

You should closely track the buyers’ and sellers’ activity and enter a trade once the direction is set. The best solution is to wait for an appropriate candlestick pattern at support or resistance levels and enter the trade after a rejection. As an asset’s price is plotted over time using Japanese candlesticks, they form a Japanese candlestick chart of many candlesticks. The graph you see below is a 4-hour candlestick chart where each of the candlesticks represents a 4-hour period. Let’s look at a few more patterns in black and white, which are also common colors for candlestick charts.

  • After a long uptrend, long white candlestick or at resistance, focus turns to the failed rally and a potential bearish reversal.
  • It’s for this reason that I don’t wait for candles to complete when I am trading my various strategies .
  • A gravestone doji is formed when the open, low and closing prices are all near each other, with a long upper shadow .

The best candlestick pattern to trade for beginners is the one that’s the easiest to identify… and that’s Doji. “Low” is the lowest trading price of the asset during that time period. Long wicks mean the price went much higher or lower than the opening and closing prices. Candlestick patterns include dojis, abandoned babies, dark cloud covers, and falling windows, and other creative names.

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The longer the real body, the more pressure there is to buy or sell. If the real body is filled in, then the opening price is higher than the closing price. If the real body is empty, then the closing price is higher than the opening price.

They’re similar to Western-style bar charts, but not quite the same thing. With candlestick charts, investors can glean a bit more information. The Inverted Hammer and Shooting Star look exactly alike, but have different implications based on previous price action. Both candlesticks have small real bodies , long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals, but require confirmation before action. A candlestick that forms within the real body of the previous candlestick is in Harami position.

Every candlestick shows the opening, closing, highest and lowest price of a selected timeframe. The potency of this candlestick is decreased because it can appear at any point, but it mainly shows up at the end of a downward trend. The signal strength is not strong, and it is used to substantiate a future trade. When the price penetrated above the high, it triggered those orders, adding the additional bullish momentum in the market. Some beginner traders may recognise the bullish setup and enter a buy order at this point.

The lows were tested, but the price found no comfort there; there were enough buyers at this level to move the price back up. You can see the price pattern here; the price was going down, then the Doji appeared, and then the price reversed and proceeded upwards. We can see a Bullish Engulfing pattern at the $10,000 level of BTCUSD in the above image.

The conventional short-sell triggers form when the low of the engulfing candle is breached and stops can be placed above the high of the harami candlestick. Find out more about candlestick charts, what they are, how to read them, and how to use them to become a better trader. For example, by using oscillating technical indicators, a trader will first wait for a signal that the market has moved into an overbought or oversold condition. At that point, they would look for a reversal signal of the prevailing trend. Many times, this reversal signal will come in the form of a candlestick formation. If you are chart reading and find a bullish candlestick, you may consider placing a buy order.

Bullish Engulfing Pattern

Bullish patterns are candlestick patterns that have historically resulted in upwards movement once completed. The body of each candlestick will most often be coloured in green or red. Green means that the overall price movement during that period was positive. Blending the candlesticks Over-the-Counter of a Bearish Engulfing Pattern or Dark Cloud Cover Pattern creates a Shooting Star. The long, upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing, and Dark Cloud Cover Patterns require bearish confirmation.

You should consider the price trend and levels while projecting the price direction using candlesticks. Of course, the global financial market can be very unpredictable, including crypto. But it is possible to understand how the market works when technical and fundamental analysis, asset management techniques are used correctly. A white candlestick depicts a period where the security’s price has closed at a higher level than where it had opened. A doji is a name for a session in which the candlestick for a security has an open and close that are virtually equal and are often components in patterns.

Six Bearish Candlestick Patterns

As you may know, when the market consolidates for a while, it is basically setting up to breakout in one direction or the other. The formation of this bullish Candlestick pattern provided a signal as to of which way the market was about to break. Trade Ideas promises and delivers the nirvana of market-beating returns. This Benzinga Pro review reveals it is best for traders who want a high-speed actionable real-time news feed that costs 1/10th of the price of a Bloomberg terminal. Benzinga Pro includes charts, financials, screening, options mentoring, and a powerful calendar suite to get a trading edge. When a hammer comes after a downtrend, it signals that selling activity is starting to slow, and buyers are beginning to control the market.

Candles are constructed from 4 prices, specifically the open, high, low and close. They also form different shapes and combinations commonly known as candlestick or candle patterns. Candle patterns can be single, double or triple patterns that consist of one, two or three candles respectively. The unique three river is a candlestick pattern composed of three specific candles, and it may lead to a bullish reversal or a bearish continuation. A bullish harami cross occurs in a downtrend, where a down candle is followed by a doji. The bullish harami is the opposite of the upside down bearish harami.

Candlestick Chart Patterns

While candlestick charts are excellent for traders to interpret the possible market trends and to make decisions strategically. Although candlesticks patterns in all timeframes come from the price movement, there is technically no difference in higher or lower timeframes. Today, almost all financial markets rely on candlestick charts as a world currencies price representation. Each candlestick pattern has a specific interpretation that reflects the attitude of market participants. The patterns can also provide trading signals since traders are human beings who tend to act similarly in the same situations. Let’s say you switch to a daily or D1 chart, where each candle represents 24 hours.

We also providetrade alerts“setups” with our nightly watch lists. We recommend using our ebook in conjunction with free free candlesticks course. Our ebook and wallpapers will help bring to life what you learn in our courses. We do our best to make the process of how to read candle charts as easy as possible. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you.

Over the years, Japanese traders had developed various Candlestick patterns based on historical price movements. Every trader should invest their time and learn these patterns as it will provide a deeper knowledge learn to read candlestick charts and understanding of reading forex charts in general. Candlestick patterns can help you interpret the price action of a market and make forecasts about the immediate directional movements of the asset price.

Author: Matt Egan

Forex Education