In Stock Market different types of charts are available, but among all these charts, Candlestick charts are the most popular type of chart, which is used by traders and investors to analyze and understand market trends.
Candlestick charts provide a visual representation of price movements in a given time period which is widely used in technical analysis. In this post, we will discuss how to read candlestick charts to maximize your profit.
What is a Candlestick Chart
A candlestick chart is a type of financial chart, which is used to represent the price movements of a stock, currency, or commodity over a specific time period.
Each candlestick on the chart represents the price movement of the security for a given time period, usually a day, 1 hour, 30mins, 15 mins, 5mins and so on. The chart shows the opening, closing, high, and low prices of the security in the form of a candlestick.
How to read Candlestick Charts
To read a candlestick chart, there are several things that should be kept in mind:
Candlesticks colors are either green or red, or you can choose them according to your need, like white or black and so on. Green candlestick indicates a bullish trend, where the condition is, closing price should be higher than the opening price, and then it will form green candle.
Red candlestick indicates a bearish trend, where the closing price is lower than the opening price, which forms a red candle.
The body of a candlestick represents the difference between the opening and closing prices of the security (stock, currency and so on).
The body is shaded or filled to represent the color of the candlestick. Generally a longer body indicates a stronger trend, and a shorter body indicates a weaker trend.
Candlestick shadows, also called wicks or tails, these are the lines that extend from the top and bottom of the body.
These wicks or tails represent the high and low prices of the security during the time period. The length of the shadows indicates the volatility of the security during that time period.
Candlestick patterns are formed by the movement and arrangement of candlesticks on the chart. There are several candlestick chart patterns available. These chart patterns help traders to identify trends or reversals in the market. Some of the most used candlestick chart patterns are doji, hammer, hanging man, shooting star, inverse hammer, engulfing patterns and so on.
With the help of these chart patterns a trader can analyze the market trend and based on it, he can maximize their Profit.
By following these tricks you can get advantage of candlestick charts:
- Identify Trends
With the help of Candlestick traders can identify trends in the market. By analyzing the colors, bodies, and shadows of the candlesticks, traders can determine whether the trend is bullish or bearish.
- Look for Reversal Patterns
Candlestick patterns also help you to identify potential trend reversals in the market. By identifying reversal patterns such as doji, hammer, shooting star and engulfing patterns, traders can make a informed decisions to enter or exit from a trade.
- Use Candlestick Patterns to Confirm Other Indicators
Candlestick patterns can also be used in conjunction with other technical indicators such as moving averages and trend lines to confirm signals and improve your trading decisions.
- Keep an Eye on Support and Resistance Levels
As we know Support & Resistance levels are those price levels that the security has struggled to break through in the past. By analyzing the candlestick chart, traders can identify these levels and can use them to take correct trading decisions.
Candlestick charts are a powerful tool for traders as well as investors to analyze and understand market trends. By properly using candlestick traders can maximize their profits. It’s important to keep in mind that candlestick charts are not a single dependable source, traders and investors should use other sources of information like fundamental analysis, market news, and events, to confirm their candlestick chart signals.
This is the end of the post “How to read candlestick chart to maximize your profit”, hope we provided some value.
Nirmal is a NISM Certified Derivative Trader & the Founder of InvestandEarn.net (Financial Blog). He entered the world of Equity research to explore his interests in financial markets having 5+ Years of Experience in Share Market Trading & Investing. Nirmal frequently writes about Share Market Trading & Investment and publishes his personal view on the market. Drop him a mail at email@example.com.