Candlestick
We have had
covered various types of stocks and forex charts
in our previous discussion. Among all, the candlestick chart is
the most commonly used charting method compared to any traditional
charting method, candlestick chart is much easier to interpret,
each candlestick provides an precise trading relationship between
the open, close, high and low prices.
Introduction
to Candlestick charting
Candlestick's
bodies
In general, the longer the candle body is, the more heavy the buying
or selling pressure is. Conversely, short candle body indicate little
price movement. It may also represent pricing consolidation.
White candlesticks showed prices moved upward.
The long body
indicates that prices advanced significantly from open to close
and buyers were aggressive.
A long white
candlestick can represent a potential turning point or future support
level in the down trend.
Black candlesticks show selling pressure.
The longer
the black candlestick mean that the most aggressive the prices declined.
A long black
candlestick can represent a turning point or mark a future resistance
level.
A long black
body also indicate panic or capitulation of traders.
Marubozu
We often encountered candlesticks without the tail ( shadows ),
The Jap named it Marubozu.
A White Marubozu = The open price equals the low and the close equals
the high.
This indicates
that buyers controlled the price action all the way from the open
to the close.
Black Marubozu
= The open price equals the high and the close equals the low.
This indicates
that sellers controlled the price action from the open to the close.
 Long
and Short Shadows
Candlesticks with a long upper shadow and short lower shadow indicate
that buyers dominated during the session and forced prices up. However,
sellers later over take it and forced prices down.
Candlesticks with long lower shadows and short upper shadows indicate
that sellers dominated during the session and drove prices lower.
However, buyers later came in and pushed the prices higher.
 
Spinning
top and Doji
Candlesticks
with long upper and lower shadow and small body are called spinning
tops.
Spinning tops
represent indecision of buyers and sellers.
The small real
body shows little price movement during the session.
A
white body spinning top indicates weakness among the bulls and a
potential change of trend direction.
A
black spinning top indicates weakness among the bears and a potential
change in trend direction.
Doji
Doji form when the open price and close price are almost equal.
The length of the upper and lower shadows can vary and the resulting
candlestick looks like a cross or an inverted cross.
A bullish or bearish reversal signal, but require to study together
with the preceding price action and future confirmation.
Doji convey
a sense of indecision or tug-of-war between buyers and sellers.
However, a
doji would not be considered important if it forms among other candlesticks
with small real bodies.
A doji that
forms among candle sticks with long real bodies could indicate a
reverse signal.
Now we know
how to read and interpret candlesticks. Next, we will Learn how
to trade with candlesticks charting and reversal
pattern.
|