How to Read a Candlestick Chart
A candlestick chart is a candle chart consisting of individual candles, which traders use to understand price action. Price action candlesticks involve determining where the price is open for a period, where the price is closed for a period, as well as the highest and lowest prices for a certain period.
Price action can give traders of all financial markets clues about trends and reversals. For example, groups of candles can form patterns that occur across a forex chart that can indicate a trend reversal or continuation. Candlesticks can also form individual formations that can indicate buy or sell entries in the market.
The period depicted by each candle depends on the time frame chosen by the trader. A popular time frame is the daily time frame, so candles will represent the open, close, and high and low for the day. The different components of a candle can help traders predict where the price will go, for example if a candle closes well below its open it may indicate further price declines. This is how to read candlesticks more simply and accurately. Perform analysis on the following four elements:
Body size
Through the size of the candlestick body, traders can get information about the strength of each party. If the body is elongated, it means that the momentum is strengthening. However, if the body shrinks, then the momentum is also getting slower.
Axis Length
The length of the wick or tail of a candlestick is related to price volatility. The long wick indicates the price is moving fast for the duration of the candlestick, but getting rejected due to resistance.
Ratio Between Body Length and Axis
Pay attention to the ratio of body and axis sizes. When the market is trending with high momentum, traders will often find candlesticks that are long but with smaller wicks. When market conditions are uncertain, volatility will increase. Here, the body of the candlestick will be smaller, but the wick is actually longer.
Candlestick Body Position
If a trader finds a long wick candle with the body position at one end, it indicates resistance. Meanwhile, the position of the candlestick which is in the middle of the lower wick and the upper wick indicates uncertainty in the market. Traders may read references to various candlestick patterns. However, insight into the elements should still be prioritized. If the trader knows each element well, then the trader can master how to read candlesticks which is more simple and accurate.
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