How to read a candlestick chart
Below are examples of the two most basic types of candlestick formation: buyer candles and seller candles.
Candle buyer and seller
Both candles provide useful information to merchants.
High and low price levels represent the highest and lowest prices created within the selected time period.
Seller candles, marked with a red or sometimes black body, tell you that you have won the battle for a period chosen by the seller. This is because the closing price level is lower than the closing price level.
Buyer candles, marked with a green or sometimes white body, tell you that they have won the battle for the duration chosen by the buyer. This is because the closing price level is higher than the closing price level.
How do traders use this information? Two ways:
If the next candle continues to make new lows after the seller candle, it is a sign that the seller is willing to continue selling the market. Due to these weaknesses, some traders can start short-term (sales) positions or maintain short-term positions they already have.
If the next candle continues to make new peaks after the buyer candle, it is a sign that the buyer is willing to continue to buy the market. This force allows some traders to start long (buy) positions or keep long positions they already have.
The usefulness of the candlestick chart does not stop there. It is also worth looking at some of the main types of unique patterns that can help traders in the decision making process if they learn how to read the candlestick chart.
Optimistic candlestick chart pattern
Here are some examples of accent candlesticks.
The hammer candle shows the seller pushing the market to a new lows and the buyer pushing it back. Candles opened in the first half of the year and the closing price level indicates a decline in the possibility of a future decline and a rise.
The accent is a red candle followed by a green candle pattern with uncertainty in the market, with the potential to break out. These are also referred to as 'inner candles' forming, as one candle is formed within the high to low price range of previous candles.
Optimistic engulfing is a red candle followed by a pattern of green candles that indicate a strong change in sentiment in the market. In essence, candles completely cover the range from high to low in the price of previous candles, suggesting that the likelihood of a rise continues.
Bearish candlestick chart pattern
Here are some examples of weak candlesticks.
An inverted hammer, also known as a shooting star, shows buyers pushing the market to a new highs and showing the sellers putting it all down again. Candle opening and closing price levels in the second half of the year, indicating the possibility of rejecting the rise and falling next.
Weak Harami's green candle pattern followed by a red candle pattern makes it impossible to make a decision in the market and is likely to break out. These are also referred to as 'inner candles' forming, as one candle is formed within the high to low price range of previous candles.
Weakness sweeping weakness indicates strong emotional changes to the market with a green candle followed by a red candle pattern. In essence, it suggests that the candle completely covers the range from the high price to the low price of the previous candle.
Identifying forex trading patterns in candlestick charts
Now you know more about how to read the candlestick chart. Can you find the candlestick pattern below?
Examples of candlestick patterns
These are just some of the patterns you can usually find on candlestick charts. It does not emphasize all of them, but it is a great foundation to build on. What is striking is that sometimes these patterns begin the onset of extended directional movement. In fact, looking back, you can see the market cycle of the chart more clearly.
Identifying the market cycle is useful when analyzing forex trading charts. This is because it can help determine the overall trend or future bias of the market. Of course, it doesn't tell you how many pips the market will move, but it can help shape part of the picture when reading the forex charts.
Forex Candlestick Chart Example
When you first look at the forex trading chart, it may seem difficult. However, understanding the price and time axis will help you understand what has happened historically, which can help you identify the likelihood of what will happen next. Understanding how to calculate exchange rates and pips helps traders analyze risks, especially when used in conjunction with the Admiral Markets trading calculator.
All three chart types have their own characteristics, and candlestick charts are the most popular among traders around the world. Identifying patterns in the candlestick chart (e.g. bearish or bullish engulfing) can help with trading.