How to understand candlestick charts?
The Candlestick chart provides the closing price, open, high, and low price. There are two colors one for up and the other for down.
Candlestick charts are a popular type of financial chart used to represent the price movement of an asset, such as stocks, commodities, or currencies, over a specific time period. These charts provide a visual representation of price data, making it easier for traders and analysts to understand and interpret market trends and patterns. Candlestick charts originated in Japan in the 18th century and have become widely used in technical analysis. Here's how candlestick charts work and what their components represent:
Candlestick: Each individual element on a candlestick chart is called a "candlestick." A candlestick typically represents the price action for a specific time period, which can be a minute, an hour, a day, a week, or any other chosen interval. The candlestick has two main components:
Body: The rectangular area between the opening price (the price at the beginning of the time period) and the closing price (the price at the end of the time period). The body is filled (colored) if the closing price is lower than the opening price, indicating a bearish (downward) movement. It is hollow (not filled) or colored differently if the closing price is higher than the opening price, indicating a bullish (upward) movement.
Wicks or Shadows: The thin lines (lines extending above and below the body) are called "wicks" or "shadows." The upper shadow extends from the top of the body to the highest price reached during the time period, while the lower shadow extends from the bottom of the body to the lowest price reached during the time period.
Interpretation:
A bullish candlestick (hollow or filled with a different color) indicates that the closing price is higher than the opening price, suggesting upward price momentum.
A bearish candlestick (filled or colored differently) indicates that the closing price is lower than the opening price, suggesting downward price momentum.
The length of the body and the shadows provide information about the range and volatility of price movement during the time period.
Patterns and Analysis: Candlestick charts are valuable for identifying patterns and trends in price movements. Traders and analysts use various candlestick patterns to make predictions about future price movements. Some common patterns include:
Doji: A candlestick with a very small body, indicating uncertainty or indecision in the market.
Hammer and Hanging Man: These are single candlestick patterns with long lower shadows and small bodies, signaling potential reversals.
Engulfing Patterns: These occur when one candlestick completely engulfs the body of the previous candlestick, suggesting a reversal in the prevailing trend.
Morning Star and Evening Star: These are three candlestick patterns that indicate potential reversals in trends.
Bullish and Bearish Harami: These patterns involve a small candlestick inside the body of the previous candlestick, suggesting a potential trend reversal.
Candlestick charts are a valuable tool for technical analysis in financial markets. Traders use them to make decisions about buying or selling assets based on patterns and trends identified in the charts. However, it's important to note that while candlestick patterns can provide insights, they are not foolproof and should be used in conjunction with other technical and fundamental analysis techniques to make informed trading decisions.
1. Doji
Dogi is the part of the charts, that indicates the bull and bear fall. Doji candles gain importance depending on the place where they are formed.it is considered it occur after a long white candle because it indicates that the balls are getting exhausted. Similarly, our doji is formed after a long black candle means the bears have become exhausted, and there it is considered bullish.
Long and short body
Long body: A long body in a bullish candle means absolute control by bulls. Along bearish candle means beer control and along with bearish.
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