Tips for Reading Candlesticks in Trading
The term candlestick chart is used by many traders to show prices. Because visually the candlestick chart is easy to understand and the information presented in each candlestick is quite complete, including the opening price, lowest price, highest price, and closing price. Reading candlesticks is not just memorizing and getting to know the formations. Many books reference hundreds of candlestick patterns, with each pattern having the information and description to know what will happen next in the forex market.
In fact, memorizing hundreds of candlestick patterns does not make a significant difference to a trader's trading performance. Actually, traders don't need to memorize all the patterns for candlestick analysis. Traders only need to know the big picture how to read candlesticks, because each candle is basically able to inform the price structure, trend strength, buyer versus seller dynamics, and the projected direction the price will move in the future.
How to Read Candlesticks
If the candlestick is green, it means that the price has increased and closed higher or has a large enough buying interest. However, if the candlestick is red, it means that the price has decreased and closed lower or the selling pressure is large.
The most important thing to understand is that candlesticks convey messages regarding the market structure, the strength of a trend, the battle of buyers and sellers and the possibility of the next price movement. Price movement is a battle between buyer/buyer/bull traders vs seller/sell/bears traders.
CANDLESTICK KEY ELEMENTS
Candlestick Body Size
The element of measure can help identify who is in control, be it a buying trader or a selling trader. The larger or longer the candlestick size, the stronger the control holder. On the other hand, the smaller the size indicates that neither the buyer's trader nor the seller's trader can move the price too high.
Candlestick Shape
The length of the tail of a candlestick indicates the volatility of price movements. The longer the tail of the candlestick indicates that the trader in control had time to move the price far enough before being rejected due to a backlash from other traders.
The longer the tail of the candlestick, the greater the price volatility. Candlesticks with short bodies at the ends and long tails indicate a reversal, generally found in areas of support or resistance. While a candlestick with a short body and being in the middle between two long tails indicates the market is in doubt, both buyer traders and sellers traders.
Candlestick Position
The component that most determines the chance of winning in transactions using candlesticks is the position of the candlestick against the trend of a price. The candlestick pattern that appears indicates an opportunity to continue the trend or a price reversal pattern occurs.
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