How To Read Candlestick Charts

Posted by kelly Category: Forex Trading

reversal patterns

I a little about Price Action and I want to learn more from other sources. I traded in Binary Option using a 1-minute time frame, and I’ll try this technique if it works. I want to buy your “Price Action Trading Secrets” ebook, but please let me know if it can help me too in Binary Option trading. Thank you for cheering more light into candlestick chart.It is very helpful. Leave a comment below and share your thoughts with me about this candlestick chart guide.


There are hundreds of trading books out there and every book promotes a different approach to trading and how to find the best trading opportunities…. The bid price is the highest advertised price someone is willing to buy at. The ask or offer price is the lowest advertised price someone is willing to sell at. To understand how this works, let’s look at how each bar is constructed. Charts provided by TradingView, the charts I personally use.


However, candlestick charts are useful in revealing more than simply the movement of price over time. Experienced traders use candlesticks to identify patterns, gauging market sentiment and building predictions about what may happen next in the market. Today, Homma is viewed and respected as the grandfather of candlestick charts, thanks to his research on price pattern recognition. While the trend originated in Japan, it soon became widespread, and now is an essential tool for investors around the world in analysing trends and reversals on the stock market. Today, candlestick charts are used to track trading prices in all financial markets.

bullish candlestick

The morning candlestick pattern forms at the bottom of a downtrend and is made up of three candles. The first candle is any long and bearish candle, the second one is a small and indecisive, and the third candle is any long and bullish candle. The price range between the open and closed positions of a candlestick is plotted as a rectangle on the single line. If the close is above the open, the body of the rectangle is white. If the close of the day is below the open, the body of the rectangle is red.

Bullish two-day trend continuation patterns

The formation of this bullish candlestick pattern was the signal as to which way the market was about to break. ​A bearish engulfing pattern develops in an uptrend when sellers outnumber buyers. This action is reflected by a long red real body engulfing a small green real body. The pattern indicates that sellers are back in control and that the price could continue to decline.

  • Once you get to know who’s in control, every candlestick chart patterns you see will be easier to spot and interpret.
  • Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully.
  • Now, we mention the time period because depending on the timeframe of the candle you designate, the candlestick chart tells a certain story.
  • When a bullish candlestick appears, it means a sharp increase in the number of asset purchases, suggesting one could enter a long.

The open represents the initial deal of the period, while the close represents the last trade of the period. If the next candle fails to make a new high then it sets up a short-sell trigger when the low of the third candlestick is breached. This opens up a trap door that indicates panic selling as longs evacuate the burning theater in a frenzied attempt to curtail losses.

Types of Candlestick Patterns

If you’re serious about learning how to use candlestick charts, you owe it to yourself to do it the right way. With Nison candlesticks – candlestick training the right way- you can be sure you are getting the correct candlestick training. Let’s now look at the circled area on the candlestick chart in Exhibit 2 . Note the different perspective we get with the candlestick chart than with the bar chart. On the candlestick chart, in the same circled area, there are a series of small real bodies which the Japanese nickname spinning tops.

In fact, candlestick charts had been used for centuries before the West developed the bar and point-and-figure charts we know and use today. In the 1700s, a Japanese man named Homma noted that in addition to the link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. A candlestick chart is a technical tool for forex analysis that consists of individual candles on a chart, which indicates price action. It is important to understand how to read candlestick charts and what the different components of a candle are. If you want to learn how to apply candlestick chart analysis to your trading strategy, this article covers all the basics to help you get there.

This union of Eastern and Western techniques provides our clients with uniquely effective tools to help enhance profits and decrease market risk exposure. At, we have found the candlestick charts are most potent when merged with Western technical analysis. Accordingly, we harness the best charting techniques of the East and West to provide you with uniquely effective trading tools. Now that we’ve talked about some of the candlestick patterns you will encounter, let’s get into how they may be interpreted as bullish or bearish. The first kind of candlestick that I’m going to explain is the bullish candle.

Sure, the market still closes each day at 4PM, but on a given day, there are 78 five-minute candlesticks. The lowest point of the lower wick indicates the lowest traded price for that time period. If the open or close was the lowest price, then there will be no lower wick. Because the bullish and bearish pressures in the market have reached equilibrium.

This motivates bargain hunters to come off the fence further adding to the buying pressure. Bullish engulfing candles are potential reversal signals on downtrends and continuation signals on uptrends when they form after a shallow reversion pullback. The volume should spike to at least double the average when bullish engulfing candles form to be most effective. The buy trigger forms when the next candlestick exceeds the high of the bullish engulfing candlestick. Once you master the basics of reading candlestick charts, you potentially can start integrating them into your preferred trading strategy for better accuracy. To use the insights gained from understanding candlestick patterns and investing in an asset, you require a brokerage account.

Bearish/Bullish Harami

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If a candle has a long wick at the bottom, this could mean that traders are actively buying that asset as its prices fall. This may indicate that the asset is on its way up, increasing in price. If you see a spinning top candlestick with shadows of equal lengths after a long incline or decline period for a market, it can sometimes represent a reversal in the trend. Examine the lower shadow of the candlestick to determine the low price. Check the line coming out of the bottom of the body to see what the lowest price for the market was. may create several patterns, including the engulfing, hammer, shooting star, doji, and many more, based on these four values. The stock prices are of the company Apple Inc., and the data is between the time frame January 1980 – November 2011. A candlestick chart is a type of financial chart that shows the price action for an investment market like a currency or a security. The chart consists of individual “candlesticks” that show the opening, closing, high, and low prices each day for the market they represent over a period of time. In order to read a candlestick chart, figure out what each different part of a candlestick tells you then study the different shapes to learn about market trends. A hanging man candlestick looks identical to a hammer candlestick but forms at the peak of an uptrend, rather than a bottom of a downtrend.

The price low is the lowest level hit by the price in the candlestick; it is marked by the lower shadow. If there is no shadow, the lowest price is at the opening/closing level. The price high is the highest level reached the price over the period. If there is no shadow, the open or close price is the highest over the period.

How to Read Candlesticks on a Crypto Chart: A Beginner’s Guide

A candlestick consists of a solid part, the body, and two thinner lines which are called candle wicksor candlestick shadows. The last price, or the price that shows as current on the price axis of a candlestick chart, is the last transaction price when trading stocks, ETFs, futures, and most other assets. Whatever the last transaction price was, that is what the price will show on the y-axis of your chart. A green bar indicates the price closed higher than the open price of that time period.

When this behavior happens, a token will of course meet pressure as its price rises and gets near a predicted resistance level. As you can see in the images above, our price chart now allows for users to draw trend lines and thus make more informed decisions about market trajectory. And whereas before the candlestick view was quite simplistic, you can now view moving averages from the get-go. This article, previously called “How to read a candlestick chart” has been appended to include new features from Poloniex’s New Trading System upgrade. I was having tremendous trouble reading a price chart on how to determine its direction and what the candles were telling me and what it was saying as price reached my key levels!