Becoming adept at trading and knowing when and how to make the best choices that can give your portfolio a boost is no simple task. If you’re a beginner, it can seem like it’s taking an eternity, and making mistakes will most likely be a common thing for a while, but don’t let yourself be discouraged. The steady approach is the one that ultimately yields the best results because it serves as an important learning experience at the same time.
In order to become better at what you do and see practical results, you must do your research and understand the intricacies of the marketplaces you are dealing with. There are so many concepts out there that will influence your trading and success rates, and while some of them refer to strategies you should adopt yourself, others deal with changes happening within the marketplaces themselves that you need to be aware of to make sound decisions.
What are candlestick charts?
Candlestick patterns are price movements that can determine the aspects of a market movement that tend to repeat over time. The pattern recognition is achieved via programs and protocols used for charting, and which rely on predefined rules to match the patterns. There are numerous recognized and well-known candlestick formations, ranging from the simplest to the highly complex. The origin of these charts is believed to lie with Honma Munehisa, a rice merchant that lived in Japan between 1724 and 1803.
He came up with this tool for technical analysis after realizing that there’s a very close relationship between the supply and demand for rice and the price point for which it was sold. Moreover, he noticed that the marketplaces were also very much influenced by the emotions of the traders. Others believe that this anecdote is unlikely and that while the candle charts did indeed appear in Japan first, they were probably developed sometime in the late 19th century and weren’t the work of a single individual.
Description and components
The daily candlestick pattern displays the market’s open, close, high, and low values for a given day. The wider part of the candlestick is known as the “real body”, and stands for the price range between the open and close of the day. Black and red mean that the close was lower than the open, while white and green signal that the close was more elevated. You have the ability to customize the colors depending on your preference.
Price movements occurring either above or below the real body are referred to as “wicks” or “shadows.” They display both the highest and lowest traded prices of an asset as they occurred during the timeframe. The range can be calculated by subtracting the low level from the highest one. Candlesticks also have the ability to choose current prices as they are forming, irrespective of whether the values are moving up or down.
There is also a version of the candlestick chart that is referred to as a hollow candlestick. They show the difference between the current open and closed prices, particularly if the latter is greater than the former.
Types of candlestick patterns
There are so many different patterns out there that learning them by heart overnight is an impossible task. Give yourself time to become accustomed to them to avoid mistaking them for each other and hurting your trading ventures. The Hammer is one of the simplest, a candlestick that is either black or white and which consists of a very tiny body near the high. There is very little upper shadow and absolutely no long lower tail.
The Big Black Candle has a very wide range between the high and the low areas, with the prices being open around the high and close around the low. It is generally regarded as a bearish pattern. The Doji forms when the opening and closing values are more or less the same thing, but the lengths of the shadows vary. The spinning top can be either black or white and has a really small body, but the sizes of the shadows will vary. This makes it a neutral pattern.
Among the more complex patterns, the Bearish Harami is one of the best-known. The white part of its body is the largest, but there’s also a smaller black area contained in it. The Engulfing Bullish is almost the same time, except for the fact that the large white candlestick is the one that follows the small black body, and it showcases the beginning of a sizable reversal trend. The Morning Star appears as a large black body candlestick, which is followed by a smaller body that can be either white or black and which occurs right below. The Judas Candle is a sign of price capitulation, displaying a larger black candle followed by a smaller white one.
The Darth Maul is a small candle body with very large upper and lower shadows, which suggests that the trend that took place earlier has been dealing with a period of indecision lately.
Understanding candlesticks
The candlestick patterns are among the most well-known features in the trading world, and you must learn to master them if you want to be successful. Learn about individual patterns, what they mean, and what you must do to make the most of them when they appear. When you leverage the insights brought to you by technical analysis, you’re much more likely to make choices that are more objective and will keep you on the path to gains and success.
Most investors consider some candles to be more reliable than others. The bullish/bearish engulfing lines and the bullish and bearish long-legged doji are among them, but you should also keep an eye out for the neutral reverse signals, as they can alert you about the possibility of a directional move taking place shortly.
Trading is a complex thing if you want to see gains and ensure the continuous success of your portfolio. Learning more about technical analysis is one of the surest ways to boost your chances.
