What You Need to Know About Candlestick Charts

Go Beyond the Trade with Neil, Josh & Ross

Beyond The Trade Click here to unsubscribe.  Hey there,   You'll find two specific things in each and every issue of Beyond the Trade… First, of course, is your free trade of the day. Second, and just as important… You'll find an accompanying chart that provides the technical rationale for each trade. It will look something like this Example of a Candlestick Chart I know that analyzing the markets can seem daunting when you're first starting your trading journey.  Trading, however, is more than just confusing charts with indecipherable lines and strange indicators.  It all begins with understanding "candlesticks."  And, no, we aren't talking about the wax candles your great-great-grandparents used to light their living room.  We're talking about candlestick charts, like the one you see above, that reveal market price movement.  Once you start to understand market candlesticks and how they work, it'll be easier for you to read and interpret the charts. Price Action Naked price action is critical information for any trader. It tells you exactly what the price is doing at any given time.  The price action dictates what's going on in the market. It's important to remember this.  But how can we visualize and track price action as we prepare to trade?  That's where candlestick charts come into play. Types of Market Candlesticks A chart is made up of lots of individual market candlesticks. There are several types of candlesticks, but let's take a look at bullish and bearish first.  You can often see green and red bars scattered all over charts...  What do they mean? And how do you interpret the market's activity through these candles? Allow me to explain... Bullish Candle A green candle generally represents bullish market action and indicates that the price of a security has increased over a given period.  Remember: Green means positive price movement. Bearish Candle A red candle typically signifies bearish market action and means that the price has decreased over the period.  Remember: Red means negative price movement. Examples of Bullish & Bearish Candlesticks   As you can see in the image above, every candlestick has an open price and a close price as well as a high price and a low price.   This is always true, no matter what time period the candle represents.    It could be a five-minute candle or a one-month candle… They will all have open, close, high and low prices.   If you're looking at a five-minute chart, each fully-formed candle represents five minutes of price action.    In an hourly chart, each candle represents an hour. In a daily chart, a candle signals a day's worth of activity, and so on.    These timeframes play a pivotal role in helping us determine when and how we should enter a market.   How To Interpret a Candlestick   Traders garner information from each of these candles… They tell you all you need to know about what's happening in the market.   The rectangular part of the candle is known as the "real body." It shows us the specific price action relating to the opening and closing price.   In terms of the bullish candle, the bottom of the body shows the opening price, while the top shows the closing price.    Bearish candles are the exact opposite. The top of the bearish candle's body is the opening price, while the bottom is the closing price, since the bearish candle is displaying a price decrease.   When looking at charts, you'll often see candles with vertical lines stretching on both ends. These vertical lines are referred to as the "wicks" of the candles.    The wicks indicate the highest and lowest prices of the period. They mark the total range of the candle's price action, which is invaluable information for a trader.   Doji Candles   Doji candles are another type of candle that you will see on your charts. These candles have little to no body formed.    Although a price may have moved significantly during a given period, the candle will not have a body if it closed back at the same price as it started or somewhere near it.    This means that both bearish and bullish traders are trying to fight for dominance in the market, essentially stalling out price movement.   These candles can also mark potential U-turn points for a market or a stock, so pay close attention when you see a doji candle form on one of your charts.   What It All Comes Down To   If there's one main takeaway from this report, it's this: All of the information presented on charts are based on price action.    And as the famous saying goes, "Only price pays."    Block out all of the noise, including the talking heads on TV, Reddit traders and everything you think you know about a stock.    Instead, focus on the charts and the price action, which are really just graphic representations of traders' emotions.   Understanding this is a huge edge that we aim to exploit in Beyond the Trade, as well as all of our other Traders Agency products.   Smart traders rely on candlesticks to make trading decisions since they can help forecast the short-term direction of price actions.    And with ample practice, you'll be able to read chart patterns in no time.   Thanks again for reading Beyond the Trade.   I look forward to bringing you only the best trading opportunities that we here at Traders Agency have to offer!   All my best, Neil George Editor, Beyond the Trade © 2021 Traders Agency. 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