How To Read Candlestick Charts

bearish engulfing

The buyers have tried to move the price up, while the sellers have pushed the price down. However, the price has ultimately returned to the starting point. As the name suggests, a candlestick chart is made up of so-called candlesticks.

supply and demand

They do this by watching for candlestick patterns – but we’ll cover those in more depth later. The Japanese candlestick charts are a popular and user-friendly tools to monitor the price movements and predict the changes in the trend. The trade is exited with a profit of $12.41 in eight hours. Following the bullish candlestick, there is forming a bullish flag. After a short correction down to the buy level, the price breaks out the flag but doesn’t reach the take profit.

Hanging Man Candlestick Pattern – What you should know?

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It’s important to make sure you know what the candlestick colors represent before you check the open and close prices to ensure you aren’t getting them confused. Always double-check the settings or the color key for the app or platform you are looking at the charts in. Note that the market price is going up if the candlestick is green or blue. The color of the candlestick is usually green or blue if the market is trending upwards.

Moomoo is a financial information and trading app offered by Moomoo Technologies Inc. Our trained team of editors and researchers validate articles for accuracy and comprehensiveness. WikiHow’s Content Management Team carefully monitors the work from our editorial staff to ensure that each article is backed by trusted research and meets our high quality standards. A long-legged doji, meanwhile, has both a long upper and lower wick – so the session saw a significant high and low, but ended up where it started. On both red and green sticks, the upper and lower wick always represent the same thing. What does the Marubozu Candlestick Pattern on the chart warn about?

  • Another typical scenario shows a candlestick with two equally long shadows on both sides and a relatively small body.
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  • To understand the price and candlestick analysis, it helps if you imagine the price movements in financial markets as a battle between the buyers and the sellers.
  • If you know what these patterns could mean and what signals they generate, it’ll help you build a more advanced trading strategy.
  • “This was the most helpful article I’ve read to understand the actual candlesticks.”

I started to trade with an account of just 250 EURO a few days ago and using what I learn from you on youtube and your website I`ve double it. Please how can I identify support and resistance from chart . You look to see what was the closing price relative to the range , and look at other candel sticks relative to the candel still you want to get in on.

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. A bearish harami cross occurs in an uptrend, where an up candle is followed by a doji—the session where the candlestick has a virtually equal open and close. ​A bearish harami is a small real body completely inside the previous day’s real body. This is not so much a pattern to act on, but it could be one to watch. If the price continues higher afterward, all may still be well with the uptrend, but a down candle following this pattern indicates a further slide.

The candles can change very quickly, which can make them challenging to interpret. Both the x-axis and y-axis on a candlestick chart are numerical. Dates are not accepted directly for this graphic’s data and category labels. This chart offers more versatility as you may use it to depict days, hours, weeks, etc.

Bullish two-day trend continuation patterns

The ad headlines for online marketing can be customized by changing its appearance and its properties. The price chart is in the first half of the candlestick chart. Candlestick charts reveal various patterns which can be useful in forming investment strategies. It’s important for investors to understand what each of these patterns indicate. The direction of the price is indicated by the candlestick’s colour, with green indicating a rising price, and red indicating a falling price.

candlestick body

Candlesticks show that emotion by visually representing the size of price moves with different colors. Traders use the candlesticks to make trading decisions based on regularly occurring patterns that help forecast the short-term direction of the price. The distance between the top of the upper shadow and the bottom of the lower shadow is the range the price moved through during the time frame of the candlestick. The high price during the candlestick period is indicated by the top of the shadow or tail above the body. If the open or close was the highest price, then there will be no upper shadow.

Candlestick Star Formations

This represents the longs that finally threw in the towel and stopped out as shorts start covering their positions and bargain hunters come in off the fence. To confirm the hammer candle, it is important for the next candle to close above the low of the hammer candle and preferably above the body. A typical buy signal would be an entry above the high of the candle after the hammer with a trail stop either beneath the body low or the low of the hammer candle.

Candlestick charts are further developed line charts – which the image below shows – that serve to compensate for the disadvantage of less information. Candlestick charts have their origin in 17thcentury Japan. Today, candlestick charts are the preferred tool of analysis for traders and most investors since they provide all the required information at a glance. In this article, you will learn everything you need to master candlesticks patterns like a true professional. Candlestick charts are most often used in technical analysis of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period.


At a minimum, these studies indicate at least 50% of aspiring traders will not be profitable. This reiterates that consistently making money trading stocks is not easy. Day Trading is a high risk activity and can result in the loss of your entire investment. Regardless of the complexity, the location of all these candlestick patterns is one of the most important aspects of understanding candlesticks pattern types.

How to read ‘one-candle’ signals

This in essence, traps the late buyers who chased the price too high. The typical short-sell signal forms when the low of the following candlestick price is broken with trail stops at the high of the body or tail of the shooting star candlestick. Recognizing candlestick chart patterns is the first step toward understanding this useful and popular method of analyzing market price action. If you know what these patterns could mean and what signals they generate, it’ll help you build a more advanced trading strategy. Traders often rely on Japanese candlestick charts to observe the price action of financial assets. Candlestick graphs give twice as much information as a standard line chart.

The pattern, like the morning star, should have gaps between the first and the second candlesticks, and between the second and the third candles. In practice, as a rule, there is one gap between the first and the second candlesticks. Besides, there are three more dark cloud cover patterns, confirming the downtrend. Next, buyers try to break out the resistance level during three days but they fail. Bears go ahead and draw the price to the lower support level again. A hammer pattern helps traders define the potential reversal zone.

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This pattern shows pure and unquestionable control by the buyers, and almost always results in higher trending prices. There is no special software or hardware to install or download if you want to read candlestick charts. Most forex brokers that use the MT4/MT5 platforms let traders switch between candlestick, bar and line charts directly through your web browser. Once you learn how to correctly read candlestick patterns, you can use this skill as part of a broader trading strategy. This can improve the consistency of your market entries and your overall performance as a trader.

Triple candle patterns is composed of three candlesticks. The most common reversal patterns are a morning star, an evening star, a tri-star doji top, a tri-star doji bottom, three black crows. The meaning of the candlestick formation is to display information about the price moves. For example, a red or black candlestick means the bears are dominating at the specified time.

The shadow indicates that although the price has tried to move in a certain direction, the opposition of market players has strongly pushed the price in the other direction. This is an important behaviour pattern which we will analyse in detail later. Anyone who knows how to analyse and interpret the so-called candlestick patterns or candle formations, already understands the actions of the financial market players a little better. So, being able to read candlestick charts is vital to almost any investment style.

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