How To Read Chart Candles

How To Read Chart Candles

triple candle patterns

We, thus, get all the information that is essential for an effective price analysis at a glance. This is why candlestick charts are mostly used for technical analysis these days. As with other markets, when you’re trading forex it’s usually a good idea to use candlestick patterns as part of a wider strategy.


If they all worked and was that easy, everyone would be very profitable. One of the main reasons they lose is because they don’t understand what candlesticks represent which is an ongoing supply and demand equation. During this session, we will spend time looking at candles not through the eye’s of conventional candlestick patterns but instead through the eye’s of supply, demand and orderflow.


Professional traders, on the other hand, will probably be waiting for the proper confirmation to enter the trade. Candlesticks are useful when trading as they show four price points throughout the period of time the trader specifies. When using historical charts, assume that the stop loss would need to be outside the candle that formed the trigger for the trader. In between trading stocks and forex he consults for a number of prominent financial websites and enjoys an active lifestyle. Red and green has become a default for many charting platforms, although a white or blue up candle is also common, as is a black down candle.

Whenever making trading decisions based on technical analysis, it’s usually a good idea to look for confirming indications from multiple sources. As you can see, the candle might look the same but the previous trend and its direction give different signals. Notice that each candle pattern in the hammer family is a reversal pattern that could be bearish or bullish depending on what directional move preceded it. Candles are constructed from 4 prices, specifically the open, high, low and close. They also form different shapes and combinations commonly known as candlestick or candle patterns.

Why are candlestick charts popular?

The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility. A “small” body can be defined as a body whose width is less than the candle range divided by 3. A bullish pin bar will then have the body located in the upper half of the candle. Also, a pin bar is not only such a candle, but it must come from the surrounding price action. Hence, a bullish pin bar must have a lower low with respect to the previous candle.

bearish engulfing pattern

The psychology of market participants’ behaviour is determined by the supply/demand ratio, which, in turn, affects the price movements. As a rule, the asset prices move in cycles, because people behave similarly in certain situations. Let’s say you switch to a daily or D1 chart, where each candle represents 24 hours. You will feel like you are zooming out of the price action as you increase the time period of your candlestick chart. A bullish candlestick forms when the price opens at a certain level and closes at a higher price. This type of candlestick represents a price increase over the period in question.

Learn how to read and interpret this chart type, and how to utilize it in your trading. The traditional Japanese candlestick charts used white for positive movement and black for negative movement. Some traders still choose to use this traditional colour scheme in their charts; others use different colours altogether. It is recognized when the price stagnates after an upward trend and it does so in form of a small bodied candle.

Bearish Candlestick

A piercing pattern in Forex is considered as such even if the closing of the first candle is the same as the opening of the second candle. Experience and common sense allow traders to read the message even if it does not exactly match the picture or definition in the book. Candlestick patterns have very strict definitions, but there are many variations to the named patterns, and the Japanese did not give names to patterns that were ‘really close’. The crypto space has grown exponentially, both in terms of revenue and mass adoption as an asset class.

Japanese Candlesticks are thought to have been introduced to the West in the book, ‘Japanese Candlestick Charting Techniques by Steve Nison. The West developed the bar point and figure analysis almost 100 years later. There are hundreds of trading books out there and every book promotes a different approach to…

  • The black wicks at each end of the candle represent the high and low of the period.
  • This pattern is seen as an opportunity for the buyers to enter long as the downtrend could be exhausted.
  • When the price penetrated above the high, it triggered those orders, adding the additional bullish momentum in the market.

Alternatively, you want to see how the price approach a level. If it approaches a key support resistance with a huge momentum in a short period, then chances are, it’ll need to take a breather and the price would likely pullback . Although it’s a bullish candle the sellers are actually the ones in control. Let us study an example of technical analysis of the dailyXAGUSD chart.

The bullish engulfing pattern appears during bearish trends. It consists of a bearish candle followed by a bullish candle that engulfs the first candle. The inverted hammer has a long upper candlewick and a small body in the lower part of the candle. Same as the hammer, an inverted hammer appears during bearish trends. The smaller the time frame you use, the closer you look into the price action of the asset.

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The wider section of the candle body represents the market pressure in crypto. An extended length of the same indicates a strong movement, while a short length represents a minor price movement incurred within the token community. Some traders find it easier to read bar charts; others prefer candles. The best approach is to open an account and try out trading using both – you’ll soon discover which works best for you. When these candlesticks are placed one after the other, they form a chart that indicates a succession of historical price movements for the asset. Homma is said to have developed candlestick charts during his lifetime by studying years of historical data and comparing them with weather conditions.

They also allow you to interpret price data in a more advanced way and to look for distinct patterns that provide clear trading signals. A hammer candlestick forms at the end of a downtrend and indicates a near-term price bottom. The hammer candle has a lower shadow that makes a new low in the downtrend sequence and then closes back up near or above the open.

This indicates the opportunity for traders to capitalize on a trend reversal by position themselves short at the opening of the next candle. It may also be used as a warning sign for bullish positions as the exchange rate could be entering a resistance zone. The below chart shows some distinctions between “real” and “false” dark cloud covers. While the green circled patterns fulfill all the recognition criteria, the red circled don’t. Before you can understand trading strategies and candlesticks, you must have a solid understanding of what is behind the creation of candlesticks. There are many conventional candlestick patterns in use today by traders around the globe.

The highest exchanged throughout the time is shown by the upper wick or top shadow. When there is no such upper wick or shadow, this indicates that the price at which the asset opened or closed is the highest traded price. The wick is the line that comes out of the top and bottom of a candlestick’s body. Sometimes, you might see it referred to as the candle’s shadow.

What is a Japanese candlestick chart?

It’s prudent to make sure they are incorporated with other indicators to achieve best results. The following are some of common candlestick reversal patterns. So, what makes them the favorite chart form among most Forex traders? The answer is that candles have a lot of qualities which make it easier to understand what price is up to, leading traders to quicker and more profitable trading decisions.