How to Read Candlestick Charts?

One such technique that traders all around the world have been using for centuries is the candlestick chart. So, let’s explore all about best chart for intraday trading in detail.

What is the Candlestick Chart?

One kind of financial chart used to show how an asset's price has changed over time is the candlestick chart. It is composed of discrete "candles" that stand in for an asset's opening, closing, and high and low prices throughout a given period of time. Depending on whether the price has increased or decreased during that time, the body of each candle has a different hue. Technical analysts frequently utilize these intraday stock charts to spot market trends and patterns.

How To Read a Candlestick Chart?

A green candle shows that an asset's closing price exceeded its initial price, whereas a red candle shows the exact reverse.

This indicates that a red candle indicates a lower closing price than an opening price.  At the peak of the day, the stock almost opened if the upper wick of the red candle is short.

Conversely, if the green candle's upper wick is short, you can infer that the stock closed close to the day's peak.

You should also examine the quantity of red and green candle sticks more closely. It will assist you in analyzing the market trend, particularly if you use price action-based stock, commodities, or currency trading techniques.

This is not where it ends! In addition to being able to read candle charts in the stock market, if you are a serious trader who engages in online intraday chart patterns, you need also be familiar with various candle stick patterns.

Candlestick Chart Patterns

For day traders, a candlestick chart is an invaluable tool for understanding investor mood and the dynamics between supply and demand, bulls and bears, greed and fear, and so on. Traders should keep in mind that while one candle might provide valuable information, comparing it to its preceding and subsequent candles is necessary to find patterns. In order to take full use of these insights, traders need to understand the different patterns found in candlestick charts.

We can divide these patterns into two categories to aid in understanding:

1.    Bullish Pattern

• Hammer pattern: At the conclusion of a downward trend, a short candlestick body with a longer lower wick signifies a significant purchasing rush. There is a stronger bull market if the stick's body is green.
• Pattern of Morning Stars: A little candlestick body should be positioned between a long red and a long green candlestick in order to create a morning star pattern. This pattern indicates that a bull market is about to start because there is less selling pressure.
• Piercing Line Pattern: Long green and long red candles are placed one after the other in a piercing line pattern. Furthermore, the green candle's closing price ought to be at least halfway up the red candle's body.
• Bullish Engulfing Pattern: An illustration of the bullish engulfing pattern is a lengthy green body engulfing a short red body. The buyers are outpacing the sellers in this circumstance.

2.    Bearish Pattern

• Hanging Man Pattern: A long red candle body enveloping a short green candle body represents the bearish engulfing pattern. This pattern, which appears at the peak of an upward trend, signals a slowdown in the market's advance and the beginning of a downward trend.
• Evening Star Pattern: A little candle body is fixed between a long green body and a long red body in an evening star design. An upward trend is about to reverse, according to this pattern.
• Bearish Engulfing Pattern: A long red candle body swallowing a short green candle body illustrates this design. This pattern, which appears at the peak of an upward trend, signals a slowdown in the market's advance and the beginning of a downward trend.

The Bottom Line

A useful tool for evaluating trends in the world of finance is the candlestick chart. Through comprehension of their structure and interpretation techniques, traders can get significant insights into price fluctuations and arrive at well-informed trading judgments. It is crucial to remember that intraday trading chart patterns work best when combined with various other technical indicators and fundamental studies rather than when used alone. You may become skilled at mastering intraday trading charts and take advantage of them in the market with a little training and experience.