How Candlestick Patterns Is Going To Change Your Trading Strategies
After reading this article, we assure you that you will be a master in analysing candlestick patterns. When you enter into stock market trading, no fundamental strategies of investments work. Therefore, no knowledge of the company’s management, revenue, liabilities count. In trading, you get a short span to analyse the market trend that makes you a good profit. So, you must learn the technical analysis of the candlestick pattern.
Before we proceed, to learn candlestick analysis, you must be aware of the fact that 95 per cent of people fail in trading. Because they want to earn money very quickly and so, they invest their money without any proper knowledge of trading sticks. Their investment is based on intuitions that are wrong most of the time. This is nothing more than a gamble and so, they end up losing all their money. After reading this article, you will have a sound knowledge of the candlestick chart that can help you to analyse the market and predict whether the price will go up or down. If you have command over candlestick chart patterns, you can also book a good profit.
Role of Candlesticks in Technical Analysis
Before we jump on to candlesticks patterns, let’s understand what is a candlestick.
Candlestick is a representation of a price chart that displays the opening-closing and maximum and minimum price of a stock in a specific interval of time.
A green/white candlestick represent that the trend is bullish while a red/black candlestick represent that the trend is bearish.
For example: Here is a candlestick of 5 min interval. Its green colour represents the bullish nature of the stock trend. The price of the candlestick was opened for $10 and closed at $15. And its wrick represents that the maximum price of the stock was $20 and minimum price was $5 with a span of 5 mins.
Similarly, a red candlestick represents the bearish nature of the stock trend, which means the price of the stock falls from its opening value. In this example, the candlestick was opened at $15 and closed on $10 but, the maximum price it reached was $20 and, the minimum price it reached was $5.
How to read candlestick patterns?
Candlestick pattern analysis allows you to predict the future movement of a stock price. In this article, we will discuss 5 major candlestick patterns then learn how you can identify to book maximum profit.
Identify Candlesticks in Bullish Pattern
1. Big Green
Here is a representation of a general bullish candlestick. In this type of candlestick, the price opens at a lower value and then drops to its minimum price, which is known as a lower wick or lower shadow. Again the price starts to increase and reaches its maximum price, which is known as an upper wick or upper shadow. Finally, the price saturates after a specific interval at a higher value than its opening price. This complete green box represents the opening and closing price of a stock and is known as the body of the candlestick.
2. Hammer Candlestick
A hammer Candlestick can be recognized by its small body and a large lower wick. It implies that although the price falls much below the opening price, the price increases and the candlestick closes at a higher value than its opening price. In other words, it represents that the selling pressure during the day was more, but strong buyers push the price back up.
Identifying Bearish Candlestick Patterns
1. Big Red
This candlestick represents a bearish trend. In Big Red, the price opens at a higher value and then increases until it reaches its maximum value, known as an upper wick. Then, the price falls to its minimum value, known as the lower wick. Finally, the price rises again and closes below the open value. These candlesticks are just the reverse of the big green candlestick.
2. Shooting Star Candlestick
A Shooting Star Candlestick can be identified by its small body with a large upper wick and small or no lower wick. It implies that although the price increased much above the opening price, in the end, the price falls, and the candlestick closes at a lower value than its opening price.
The Doji candlestick is formed when the market opens at a certain price and goes up, then falls down and finally, the market closes near its opening price. It can be easily identified by its long upper and lower wick with a very small body. Doji candlesticks are indecisive, so they are profitable for bullish and bearish stock traders.
How to read candlestick charts: Trend Analysis
In trading, the main cause of concern is how to read candlestick patterns of the stock. There are three kinds of trends that you need to analyse.
If the price of the commodity is increasing, then it is known as an uptrend. In other words, if the graph is moving upwards it represents an uptrend.
- When the market is moving upward, you need 44 moving average (rising) and look for a big green candlestick at Higher-Low points. You can buy above the high and stop loss below the low.
- Again, in an uptrend graph, take out its 44 moving average (rising) and look for a hammer in place of Higher Low. Keep one thing in mind to buy above the high and stop loss below the low.
That means you need to find a bullish candle in a higher low position of an uptrend graph. This is one of the most reliable candlestick patterns you need to book profit by using a bullish candlestick.
When the price of a stock is going down it is known as a downtrend.
- For selling, you need to find 44 moving average (falling), and look for either big red candlestick, shooting star or doji at lower high points.
In a sideways trend, the price neither goes much up nor too down. It fluctuates between a high-low zone known as resistance and support.
What are Resistance and Support
Resistance is the maximum value from where the price of a stock falls downward. Support is the minimum value from where the price of the stock bounces back.
In simple language, if you throw a ball upward in a room, it will attain the maximum height of the ceiling and reflect after hitting the ceiling. This maximum height is known as resistance. And then it drops onto a minimum level of the ground and again bounces back. Here the ground represents the support line.
Similarly, when a stock price reaches its maximum price and reflects its minimum price and again bounces back under a certain zone, this zone is known as the support and resistance zone.
Support and resistance trading
There are a lot of traders who don’t care about the company’s finances, balance sheet, assets, liabilities, management, etc. But still, they are making a good profit out of it. It is because they know the candlestick trading patterns. If the stock price of the company is going up, then the company is doing good, and if the price of the company is going down, the performance of the company is poor. If you have a good command over trading candlestick patterns, then you will definitely make a good profit.
Sellers wait for the stock to reach its resistance (near to resistance) price, so that they may book maximum profit. While buyers wait for the stock to reach its support (near to support) price to buy the stock.
Now when you have an idea about stock marketing and how to do stock trading, you can start trading with the money provided after the complete registration.
The U.S. stock market New York Stock Exchange and the Nasdaq opens from 9:30 AM to 4 PM.
Major indices are Dow, NASDAQ, S&P 500, Russell 2000.
No, it’s better not to rely on the news. You must learn candlestick patterns that lead you to gain more profit.
Moving average means adding up all the previous closing prices of a stock and dividing it by a total number of days.
44 SMA = total of 44 days closing / 44
To open the candlestick chart, simply follow these steps.
Open your trading account > Search for your favourite stock in the search bar > tap on the stock you to open its details > Check for a small chart logo at the corners of the chat > click on that logo and select the candlestick pattern.