How to read Candlestick chart?

If you are going to step in the world of trading the very first thing that you need to learn is how to read a candlestick chart. This has been predominantly used around the globe and is considered the most reliable source of information.

If you know how to interpret candlestick chart patterns you can communicate with the market trends.

ideal candle

This is the idle candlestick most probably all of us have seen. The color interprets the type of candle. With green color is the bullish candle while the red one is a bearish candle.

However, technology has made the choice of color in the hand of traders. If you find the green color not suitable for you, you can change the bullish candles of the color of your choice.

candle naming

The solid colored part of the candle is the main body while the two lines above and below are called a shadow.
This candles can be a day, hour, minute or even week, month or year. It depends on the time frame which you chose to analyze the share price.

Basic 4 elements of information that candlestick shows are

1) Open: The price at which market opens. This is the price at which the very first trade starts.
2) Close: The price in which the market was closed. This is basically the last traded price
3) High: This is the highest price high made by the stock during that period.
4) Low: This is the lowest price fall made by the stock during the same period.


candlestick naming

The hidden Interpretation

This is the numerical part of the candlestick but not the most relevant part.  The actual interpretation what you need to make is explained further.

Just have a look at the image presented below

price variation

This is the price variation of a stock from 10 am to 3 pm in a single day.

So apart from the price variation, the interpretation of the scene shows the market sentiments flowing in the time period. The war between the buyers and sellers and how they dominate the market can be interpreted here.

The 4 key interpretations of candlestick are

1) The region above dotted line is bullish region while below is bearish region
2) When body goes below dotted line, this means sellers are dominating the market
3)When body goes above the dotted line then buyers are dominating the market
4) The region where close price stands show who won the fight between buyers and sellers. In this case it, after all, it made high and low the buyers won the fight and market end on the bullish side.

Want to know the other signals from candlestick chart Click Here

Bottom line

So every candle has a story that they want to say. With bullish candles buyers are buying more and sellers are unable to compete for the order of buyers. So the buyers are optimistic here.
While in bearish candle the buyers cannot compete for the order of sellers and are fearful of buying more. While sellers keep selling the shares.

So understanding the psychology of today you can predict the behavior of traders the very next day. This helps you predict the direction of the market and now you need to judge what you want to do at this particular stage.

Post Author: Sushant Putatunda

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