The right way to Learn a Candlestick Chart

The right way to Learn a Candlestick Chart

Table of Contents

Reviewed by Nick Cawley, August 1, 2022

Studying candlestick charts – Speaking factors:

  • Candlestick charts differ enormously from the normal bar chart
  • Merchants usually want utilizing candlestick charts for day-trading as a result of they provide an pleasing visible notion of worth
  • It’s vital to know the important thing elements of a candle, and what they point out, to use candlestick chart evaluation to a buying and selling technique

What’s a candlestick chart?

A candlestick chart is solely a chart composed of particular person candles, which merchants use to know worth motion. Candlestick worth motion includes pinpointing the place the value opened for a interval, the place the value closed for a interval, in addition to the value highs and lows for a selected interval.

Price action can provide merchants of all monetary markets clues to pattern and reversals. For instance, teams of candlesticks can type patterns which happen all through foreign exchange charts that might point out reversals or continuation of traits. Candlesticks also can type particular person formations which may point out purchase or promote entries available in the market.

The interval that every candle depicts is dependent upon the timeframe chosen by the dealer. A preferred timeframe is the day by day timeframe, so the candle will depict the open, shut, and excessive and low for the day. The totally different elements of a candle may help you forecast the place the value would possibly go, for example if a candle closes far under its open it could point out additional worth declines.

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Decoding a candle on a candlestick chart

The picture under represents the design of a typical candlestick. There are three particular factors (open, shut, wicks) used within the creation of a worth candle. The primary factors to contemplate are the candles’ open and shut costs. These factors establish the place the worth of an asset begins and concludes for a specific interval and can assemble the physique of a candle. Every candle depicts the value motion for a sure interval that you just select if you have a look at the chart. In case you are taking a look at a day by day chart every particular person candle will show the open, shut, higher and decrease wick of that day.

Open worth:

The open worth depicts the primary worth traded in the course of the formation of the brand new candle. If the value begins to pattern upwards the candle will flip inexperienced/blue (colours range relying on chart settings). If the value declines the candle will flip purple.

Excessive Value:

The highest of the higher wick/shadow signifies the best worth traded in the course of the interval. If there isn’t any higher wick/shadow it signifies that the open worth or the shut worth was the best worth traded.

Low Value:

The bottom worth traded is the both the value on the backside of the decrease wick/shadow and if there isn’t any decrease wick/shadow then the bottom worth traded is similar because the shut worth or open worth in a bullish candle.

Shut Value:

The shut worth is the final worth traded in the course of the interval of the candle formation. If the shut worth is under the open worth the candle will flip purple as a default in most charting packages. If the shut worth is above the open worth the candle shall be inexperienced/blue (additionally is dependent upon the chart settings).

The Wick:

The subsequent vital component of a candlestick is the wick, which is additionally known as a shadow. These factors are very important as they present the extremes in worth for a selected charting interval. The wicks are shortly identifiable as they’re visually thinner than the physique of the candlestick. That is the place the energy of candlesticks turns into obvious. Candlesticks may help merchants preserve our eye on market momentum and away from the static of worth extremes.


The route of the value is indicated by the colour of the candlestick. If the value of the candle is closing above the opening worth of the candle, then the value is shifting upwards and the candle can be inexperienced (the colour of the candle is dependent upon the chart settings). If the candle is purple, then the value closed under the open.


The distinction between the best and lowest worth of a candle is its vary. You possibly can calculate this by taking the value on the high of the higher wick and subtracting it from the value on the backside of the decrease wick. (Vary = highest level – lowest level).

Having this information of a candle, and what the factors point out, means merchants utilizing a candlestick chart have a transparent benefit in the case of distinguishing trendlines, price patterns and Elliot waves.

Bar Chart vs Candlestick Chart

As you may see from the picture under, candlestick charts provide a definite benefit over bar charts. Bar charts aren’t as visible as candle charts and nor are the candle formations or worth patterns. Additionally, the bars on the bar chart make it tough to visualise which route the value moved.

Difference between bar chart and candle chart

The right way to learn a candlestick chart

There are numerous methods to make use of and skim a candlestick chart. Candlestick chart evaluation is dependent upon your most popular buying and selling technique and timeframe. Some methods try to make the most of candle formations whereas others try to acknowledge worth patterns.

Decoding single candle formations

Particular person candlesticks can provide plenty of perception into present market sentiment. Candlesticks just like the Hammer, shooting star, andhanging man, provide clues as to altering momentum and doubtlessly the place the market costs mightpattern.

As you may see from the picture under the Hammer candlestick formation typically signifies a reversal in pattern. The hammer candle formation has a protracted decrease wick with a small physique. Its closing pricing is above its opening worth. The instinct behind the hammer formation is easy, worth tried to say no however patrons entered the market pushing the value up. It’s a bullish sign to enter the market, tighten stop-losses or shut out a brief place.

Merchants can make the most of hammer formations by executing a protracted commerce as soon as the hammer candle has closed. Hammer candles are advantageous as a result of merchants can implement ‘tight’ stop-losses (stop-losses that threat a small quantity of pips). Take-profits needs to be positioned in such a means as to make sure a constructive risk-reward ratio. So, the take-profit is bigger than the stop-loss.

Hammer formation showing stop loss

Recognizing worth patterns in a number of candles

Candlestick charts assist merchants acknowledge worth patterns that happen within the charts. By recognizing these worth patterns, just like the bullish engulfing pattern or triangle patterns you may make the most of them by utilizing them as entries into or exit alerts out the market.

For instance, within the picture under we’ve got the bullish engulfing worth sample. The bullish engulfing is a mixture of a purple candle and a blue candle that ‘engulfs’ the whole purple candle. It is a sign that it might be the tip of a forex pairs established weak point. A dealer would make the most of this by coming into a protracted place after the blue candle closes. Keep in mind, the value sample solely types as soon as the second candle closes.

As with the hammer formation, a dealer would place a cease loss under the bullish engulfing sample, making certain a decent cease loss. The dealer would then set a take-profit. For extra foreign exchange candlestick charts test our foreign exchange candlesticks information the place we go in depth into some great benefits of candlestick charts in addition to the methods that may be applied utilizing them.

Bullish engulfing pattern

Additional suggestions for studying candlestick charts

When studying candlestick charts, be conscious of:

At DailyFX we provide a spread of forecasts on currencies, oil, equities and gold that may aide you in your buying and selling. It is usually price following our webinars the place we current on quite a lot of subjects from price-action to fundamentals that will have an effect on the market.

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