• Student of Technical Analysis

HOW to Read Candlesticks - Ultimate Guide


Candlesticks are like oxygen for a trader, knowing how to read candlesticks can take your trading game to a next level. In this article, We will learn about how to read candlesticks, what are candlesticks, and significance of candlesticks.


Read completely, if you do, you will sign out with a lot of information and learning about how to read candlesticks and all about candlesticks.


Even before you learn how to read candlesticks, it is very important to know what is a candlestick? and how are they formed? Let's Get right into it.


WHAT are candlesticks ?



How to read candlesticks
Understanding CANDLESTICKS

We will try to define candlesticks point wise, so that you can learn important points along the way.

  • Candlesticks are shapes on trading charts looking similar to candles, which are formed by buyers and sellers with their buying and selling activity in a particular duration or time period. This duration can range from 1 minute to 1 month.


  • A candlestick represents - A time frame, Strength of the buyers and sellers, and also it tells a story about the price movements in that particular time frame.


  • A candlestick has two parts - 1) Body-solid part 2) Wicks or shadows-vertical lines. A candlestick can exist without wicks or shadows, but a candlestick can never exist without a Body.


  • There can be different types of Candlesticks and they are named according to their shapes, for example - Long body candle.


  • In General, there are two types of candles based on who they represent - 1) Bullish candles (represents buyers, generally of green color) 2) Bearish Candles (represents bears or sellers, generally colored red). REFER the Picture Above.


  • There are other characteristics of a candlestick like - Open level, close level, high and low, as shown in below picture. Learn this carefully, otherwise you will never be able to learn how to read candlesticks. These characteristics are slightly different for Bullish and bearish candlesticks.


How to read candlesticks
Characteristicks of a candlestick

Now that you know the definition and characteristics of candlesticks, Let's dive in and know how to read candlesticks


HOW TO READ CANDLESTICKS-PRICE ACTION


If you know how to read candlesticks, it means you know price action. Price action is determined by how candlesticks move and form in a particular time frame, we will learn about price action in another post. For now, let's learn how to read candlesticks.


Watch this video to learn Candlesticks

We will consider 3 candlesticks, analyze one by one, and guess what? You will know how to read candlesticks at the end of analysis. Read on...


Bullish Candle - Let's see and learn how to read this candlesticks.

how to read candlesticks
Reading a bullish candle

In the above picture, we have a bullish candle, let's break it down and read it. remember, the above candlestick can represent any time frame starting from 1 minute to 1 month. For our analysis let's suppose it to be a 4H candle.

  • Price Opened at OPEN level

  • SELLERS took down the price until "LOW" (remember, candlesticks are formed by the activity of sellers and buyers)

  • At "LOW" level, BUYERS stepped in, and took the price all the way to "HIGH" level. It is possible to see up and downs in the price since sellers will be trying to take the price lower, but ultimately BUYERS were strong and took the price to "HIGH" level.

  • At "HIGH" level, sellers stepped in and took the price to "CLOSE" level, and the candle closed a this level, at the end of 4 Hours.

  • One more thing to be noted here is that, You do not know whether it is bullish candle or bearish candle, until it is formed / closed completely which happens at the end of a particular time frame that you are looking at. In this case, it is 4H

Now you know, how to read a generic bullish candle, let's move on an see the next candle.


Bearish Candle - Let's see how to read this candlestick


how to read candlesticks part 2
reading a bearish candle

In the above picture, we have a bearish candle, let's break it down and read it. remember, the above candlestick can represent any time frame starting from 1 minute to 1 month. For our analysis let's suppose it to be a 1 hour candle.


  • Price / candle opened at "OPEN" level

  • BUYERS took the price until "HIGH" level

  • SELLERS are strong and they stepped in at "HIGH" level and took the price all the way down to "LOW" level - in the movement from HIGH to LOW, it is very much possible that buyers tried to push the price up, but eventually, SELLERS were strong and took the price to "LOW" level

  • At the "LOW" level buyers stepped in again, and took the price until "CLOSE" level, and the candle closed as a bearish candle at the end of 1 hour (because we have considered a 1 H Candle)

  • Remember, ALL this action happened in 1 Hour, if you consider a weekly time frame candle, then, ALL this action happens in 1 Week, makes sense? Yes! As simple as that.


doji candle - Let's SEE how to read this candlestick


how to read candlesticks part 3
doji candle analysis

In the above picture, we have a doji candle (indecision), let's break it down and read it. remember, the above candlestick can represent any time frame starting from 1 minute to 1 month. For our analysis let's suppose it to be a 1 week candle.


  • In the above picture, observe that OPEN and CLOSE of the candlestick are same, this candle is called doji candle, or indecision candle.

  • candle / price opened at "OPEN" level.

  • Buyers stepped in, and took the price all the way to "HIGH" Level, SELLERS stepped in and took the price all the way to "LOW" level. BUYERS stepped in again at "LOW" level and took the price until CLOSE level and the candle closed. (It is also possible for SELLERS to step in first and then come BUYERS, but ultimately the result is a doji candle)

  • This candle signifies that, both buyers and sellers are equally strong, and there is uncertainty about next movement of the price.

In this way, you can breakdown and analyze any candlestick to learn how to read candlesticks. There are various type of candlesticks and candlestick patterns like pin bar, hammer, inverted hammer etc. You can analyze them in the same way we did above and you can read them to understand their significance.


THE BOTTOM LINE


Every trader must know - how to read candlesticks, perfect reading skills and candlestick analysis skills can be developed over time with lot of practice. If you know how to read candlesticks, then you can actually read the story market is telling you. Candlesticks actually narrate a story that can take your trading to a next level





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