2012 Wildcat 1000 How to Read the Dipstick

- Reviewed by James Stanley, Dec. 15, 2021

Reading candlestick charts – Talking points:

• Candlestick charts differ profoundly from the traditional bar nautical chart
• Traders generally prefer using candlestick charts for day-trading considering they offer an enjoyable visual perception of price
• It's of import to understand the primal components of a candle, and what they indicate, to utilize candlestick chart analysis to a trading strategy

What is a candlestick chart?

A candlestick chart is just a chart composed of individual candles, which traders use to sympathize cost action. Candlestick price action involves pinpointing where the price opened for a menses, where the price closed for a menstruum, too every bit the price highs and lows for a specific period.

Price action can give traders of all financial markets clues to trend and reversals. For example, groups of candlesticks tin form patterns which occur throughout forex charts that could indicate reversals or continuation of trends. Candlesticks tin also form individual formations which could indicate buy or sell entries in the market.

The flow that each candle depicts depends on the fourth dimension-frame chosen by the trader. A popular fourth dimension-frame is the daily time-frame, then the candle will depict the open up, close, and high and depression for the day. The unlike components of a candle can help you lot forecast where the cost might become, for instance if a candle closes far below its open it may bespeak farther price declines.

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Interpreting a candle on a candlestick nautical chart

The epitome below represents the design of a typical candlestick. There are three specific points (open, close, wicks) used in the cosmos of a cost candle. The beginning points to consider are the candles' open up and shut prices. These points identify where the price of an asset begins and concludes for a selected period and will construct the torso of a candle. Each candle depicts the price movement for a certain period that y'all choose when y'all await at the nautical chart. If you are looking at a daily chart each private candle volition display the open, shut, upper and lower wick of that mean solar day.

Open price:

The open toll depicts the first cost traded during the formation of the new candle. If the cost starts to trend up the candle will turn green/blue (colors vary depending on chart settings). If the cost declines the candle will turn red.

Loftier Toll:

The top of the upper wick/shadow indicates the highest price traded during the period. If in that location is no upper wick/shadow it means that the open up price or the shut price was the highest price traded.

Low Toll:

The lowest price traded is the either the price at the bottom of the lower wick/shadow and if in that location is no lower wick/shadow and so the lowest price traded is the same as the shut cost or open up price in a bullish candle.

Shut Price:

The close price is the last price traded during the period of the candle formation. If the shut price is below the open up cost the candle will turn red as a default in most charting packages. If the close price is higher up the open price the candle will be green/blue (also depends on the nautical chart settings).

The Wick:

The next of import element of a candlestick is the wick, which is as well referred to as a 'shadow'. These points are vital as they bear witness the extremes in price for a specific charting period. The wicks are quickly identifiable equally they are visually thinner than the body of the candlestick. This is where the strength of candlesticks becomes apparent. Candlesticks can aid traders go along our middle on market momentum and abroad from the static of price extremes.

Direction:

The direction of the price is indicated by the color of the candlestick. If the price of the candle is closing above the opening price of the candle, then the price is moving upwards and the candle would be green (the color of the candle depends on the chart settings). If the candle is crimson, and then the price closed below the open up.

Range:

The difference between the highest and lowest price of a candle is its range. You can summate this by taking the toll at the top of the upper wick and subtracting it from the toll at the bottom of the lower wick. (Range = highest point – lowest point).

Having this knowledge of a candle, and what the points betoken, means traders using a candlestick chart accept a clear advantage when it comes to distinguishing trendlines, cost patterns and Elliot waves.

Bar Chart vs Candlestick Chart

As y'all can see from the image beneath, candlestick charts offering a distinct advantage over bar charts. Bar charts are not equally visual equally candle charts and nor are the candle formations or price patterns. Also, the bars on the bar chart go far difficult to visualize which direction the cost moved.

How to read a candlestick chart

There are various ways to use and read a candlestick chart. Candlestick chart assay depends on your preferred trading strategy and time-frame. Some strategies attempt to take advantage of candle formations while others attempt to recognize price patterns.

Interpreting unmarried candle formations

Individual candlesticks can offer a lot of insight into current market sentiment. Candlesticks similar the Hammer , meteor , and hanging human being, offer clues as to irresolute momentum and potentially where the market prices maytrend.

Every bit y'all tin see from the image below the Hammer candlestick formation sometimes indicates a reversal in trend. The hammer candle formation has a long lower wick with a small-scale body. Its closing pricing is above its opening price. The intuition backside the hammer formation is uncomplicated, price tried to decline but buyers entered the market place pushing the price up. It is a bullish signal to enter the market place, tighten stop-losses or shut out a brusk position.

Traders can have advantage of hammer formations by executing a long merchandise once the hammer candle has closed. Hammer candles are advantageous considering traders can implement 'tight' stop-losses (end-losses that risk a modest corporeality of pips). Take-profits should be placed in such a style every bit to ensure a positive risk-reward ratio. Then, the take-profit is larger than the stop-loss.

Recognizing price patterns in multiple candles

Candlestick charts aid traders recognize price patterns that occur in the charts. By recognizing these cost patterns, similar the bullish engulfing pattern or triangle patterns you tin have advantage of them by using them as entries into or exit signals out the marketplace.

For instance, in the image below we have the bullish engulfing toll pattern. The bullish engulfing is a combination of a ruby-red candle and a bluish candle that 'engulfs' the unabridged scarlet candle. Information technology is an indication that information technology could exist the terminate of a currency pairs established weakness. A trader would take advantage of this by entering a long position later the blue candle closes. Remember, the price blueprint only forms once the 2d candle closes.

As with the hammer formation, a trader would identify a cease loss below the bullish engulfing pattern, ensuring a tight end loss. The trader would so gear up a take-profit. For more than forex candlestick charts check our forex candlesticks guide where we go in depth into the advantages of candlestick charts as well equally the strategies that can exist implemented using them.

Further tips for reading candlestick charts

When reading candlestick charts, be mindful of:

• The time frames of trading.
• Classic price patterns.
• Price action.

At DailyFX we offer a range of forecasts on currencies, oil, equities and gilt that can aide you lot in your trading. It is as well worth following our webinars where we nowadays on a diverseness of topics from toll-activity to fundamentals that may touch on the market.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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Source: https://www.dailyfx.com/education/candlestick-patterns/how-to-read-candlestick-charts.html