An Introduction to Candlestick Charts
If you are new to the world of trading and you are looking for a really easy way to trade, then one of the most important things that you need to be familiar with are candlestick charts. Candlestick charts have been around literally for hundreds of years, and they remain one of the best tools around when it comes to finding the best possible trades to make. This is especially true when it comes to beginners, because these Candlestick charts are extremely easy to read, and they also provide us with a whole lot of information.
With that being said, there are quite a few things that you need to know about these candlestick charts, especially when it comes to the composition of those candles. You need to be able to read those candles in order to determine what they are telling you.
Moreover, there are many different candlestick patterns that you need to know about, and they all tell you something slightly different. Today we want to take a much closer look at these Candlestick charts, especially what they are, what they tell you, how to read them, and much more. By the end of this article, we hope that we will have provided you with enough information to start candlestick chart trading with ease.
What are Candlestick Charts?
First off, let’s figure out what candlestick charts actually are. This is a special type of chart that can be used in many different types of trading. These are used to determine the possible price movements based on those patterns created.
The fact of the matter is that these charts are extremely useful because they provide you with many different pieces of information, including both the opening and the closing price of a specific asset, as well as the highest and the lowest price traded at during the day.
What you also need to know is that trading is often dictated by emotion, even though it probably shouldn’t be, but with that being said, this trading emotion and trading sentiment can be easily seen in these candlestick patterns. This is one of the biggest advantages that comes with using these Candlestick charts.
Of course, you need to be able to identify a variety of candlestick patterns, as well as what they mean. The trick here is of course that you need to be able to read what these patterns mean, and this means that you need to be able to identify the various components of candlesticks. Let’s move on and figure out how to read candlesticks.
The Main Parts of the Candlestick
In order for you to be able to identify all of the patterns that candlestick charts can provide you with, you do of course need to know what the various components of a single candlestick are. In order to be able to identify the various components, what you need to remember is that candlestick patterns show you what the highest and the lowest price of the day was, as well as the opening and the closing price.
Now, one of the main parts of any candle is the wide part, which is technically referred to as the real body. The real body in this case represents the range of a price between the opening and the closing for the day. If this real body is totally black or filled in, it indicates that the close is lower than the open, and if the body is not filled in, it indicates that the close was higher than the open. Do remember that sometimes down candles are shaded red instead of black and up candles are often shaded green as opposed to being white or not shaded.
What is also important to note here is that while candlestick charts and bar charts will provide you with more or less the same information, one of the biggest advantages with candlestick patterns is that they are much easier to read and to identify, especially for newbies.
Pros & Cons of Candlestick Charts
OK, so like with every type of trading tool an analytical tool out there, candlestick charts do also have their pros and cons, so let’s figure out what these are.
- One major advantage that you get with these Candlestick charts is of course that they provide you with four different types of information.
- Another advantage that you get here is that these candlestick charts are very easy to read, and this makes them super user-friendly for newbies.
- When it comes to identifying the emotion in trading, especially when it comes to market sentiment and identifying who is in control of the market, this is one of the best possible tools out there.
- Candlestick charts are also highly customizable, which means that a single candle can represent any time period of any asset.
- What many people also appreciate is that these charts work extremely well with most types of indicators.
- Speaking of indicators, do keep in mind that the price data you get from these charts is usually not enough to place the most accurate trades around, and the scenes that you do usually want to incorporate indicators into your trading strategy.
- Do also keep in mind that these Candlestick charts do sometimes cause what is called apophenia, this is a cognitive biases where people see patterns where they don’t actually exist, and this can of course lead to problems.
- The other issue here is that these threads do sometimes have large gaps in them, where one candle closes at a certain point, but the other one does not open until a different point. Sometimes you just don’t know what happened in between those two points.
An Example of Candlestick Charts Patterns
Today we just want to provide you with a basic example of what one of these Candlestick charts patterns looks like. Do keep in mind that we will be doing a second part to this article, one where we will take a much closer look at all of the most important and common Candlestick patterns out there.
Bullish & Bearing Engulfing Candlesticks
Two of the most common Candlestick patterns out there are bullish engulfing and bearish engulfing. When you have a bullish engulfing pattern, it shows that the buyers outnumber the sellers. In terms of identifying it, you will notice a long green real body that engulfs a small red real body. This indicates that the bulls have established a certain amount of control in the market, and that the price will likely continue to increase.
on the other hand, we have the bearish engulfing pattern, which is a type of pattern that usually develops in an upward trend, and it indicates that there are more sellers than buyers. Within this pattern, you will notice a long red real body that engulfs a smaller green real body. It’s a pattern that indicates that sellers are in control and that the price will continue to decline.
A Beginner’s Guide to Candlestick Charts
We hope that we have provided you with enough information to get started trading with Candlestick charts. Do keep in mind that we will be doing a second part of this article where we will cover all of the most common canister patterns that you may encounter.
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