The Easiest Way to Use Candlestick Charts
The wonderful thing about candlesticks is that you can see the direction of price movements at a peek. Not only do you determine if the candle as a whole is above or below the previous one, but you may tell by the colors whether it marked a reversal or a continuation of the trend.
Certain patterns are particularly vital in learning how to read candlestick charts.
In some cases of course the open or close will be the high or the low. In that case you don’t have a wick in one or both directions. If there isn’t any wick in either direction, this is referred to as a Marubozu pattern.
In another case, the opening and closing costs could have been the same. Then there isn’t any candle body but only wicks stretching up and down from the horizontal line that marks the open and close. This is known as a Doji pattern.
If the body of the candle is long with short or non existent wicks, close to Marubozu, this indicates a reasonably steady movement, potentially part of a trend. The colour of the candle will tell you whether or not it is an upward or downward movement.
On the other hand if the wicks are long and the body is short or non existent, more like the Doji pattern, this can indicate a choppy market with big fluctuations. Trend based trading will tend to be suspicious of Doji patterns, that might be a sign the market is starting to become untrustworthy.
Of course one candlestick by itself isn’t enough to form the basis of a trading decision. You will always look at a series of candles. For example, you can draw trend lines along the highest highs and lowest lows on candlestick charts. These will help you to identify whether a trend is forming, or if the lines are converging, whether a breakout might be expected. When you know the way to read candlestick charts you can base systems around these indications.