For intraday trading, understanding basic candlestick charts

Before the Western world created the bar and point-and-figure charts, candlestick charts were first created in Japan more than 100 years ago. A Japanese man by the name of Homma noticed that, although there was a correlation between rice price and supply and demand, trader emotions had a significant impact on the markets.

By using various colors to visually indicate the magnitude of price changes, candlestick charts exhibit this feeling. The candlesticks are used by traders to make trading decisions based on recurring patterns that aid in predicting the near-term direction of the price.

Components for candlesticks

  • Traders utilize candlestick charts to predict potential price movement based on historical trends.
  • When trading, candlesticks are helpful since they display four price points (open, close, high, and low) over the specified time period.
  • The same price data displayed in candlestick charts serves as the foundation for numerous algorithms.
  • Trading decisions are frequently influenced by emotions, which are visible in candlestick charts.

A daily candlestick displays the market’s open, high, low, and close prices for the day, just like a bar chart does. A large portion of the candlestick is referred to as the real body.”

The price range between the opening and closing prices of that trading day is represented by this real body. It indicates that the close was lower than the open when the true body is filled in or became black. The close was higher than the open if the genuine body is empty. It indicates that the open was lower than the close.

These colors can be changed by traders in their trading platform. For instance, down candles are frequently tinted red rather than black, while up candles are frequently shaded green rather than white.

 Candlestick Patterns 

Price changes that go up and down produce candlesticks. While these price changes might occasionally seem random, they can also develop patterns that traders can utilize for study or trading. Numerous candlestick patterns exist. For a sample to get you started, look at this.

Bullish and bearish patterns are divided. Bearish patterns suggest that the price will most likely decline, whereas bullish patterns suggest that the price will most likely increase. Candlestick patterns are tendencies in price movement, not absolutes, hence no pattern is ever guaranteed to work.

Pattern of the bearish engulfing

When sellers outweigh purchasers during an uptrend, a bearish engulfing pattern form. A long red real body devouring a little green genuine body serves as a reflection of this action. The trend suggests that sellers are once again in charge and that the price may drop further.

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