You’re just aiming in the dark if you trade without looking at price charts. The two most critical inputs for technical analysis are price and volume. They serve as the foundation for all technical analysis. Price charts aid in the visual analysis of price and volume data.
The most common type of price chart used by traders is the candlestick chart. The price graph in a candlestick chart is defined by a set of candles, which is why it is called a candlestick chart.
At a glance, a candlestick chart conveys valuable details such as the trend, bullishness/bearishness, and length. The map is made up of red and green candles, each of which represents the opening, closing, and range of market prices for a specific time period.
Even if you aren’t a dealer but rather an investor, you should be familiar with candlestick maps. Since no news or other internet outlets can provide you with as much valuable knowledge about a stock as its price map.
- TYPES OF CANDLESTICKS
Red and green candles make up candlestick charts.
Each candle reflects the price range over a specific time span. Each candlestick in a 5-minute candlestick chart represents a 5-minute period; each candlestick in a 10-minute candlestick chart represents a 10-minute period, and so on.
- Green Candles represent that at the end of the time span, the closing price is higher than the opening price.
- Red candles represent that at the end of the time span, the closing price is lower than the opening price.
- Candle body: The highlighted portion of the candle (green or red) represents the opening and closing price. In a red candle, the lower end of the body represents the closing price, while the upper end represents the opening price. In a green candle, the opening price is at the lower end of the body, while the closing price is at the upper end.
- Candlewick: The candle’s wick is depicted by the upper and lower shadows. The candle’s wick represents the price range over which the stock has sold during that time period.
- HOW TO READ CANDLESTICK CHART FOR DAY TRADING?
In your trading platform, you can get real-time candlestick charts of any stock.
To open the candlestick chart for a specific stock, simply check the stock name in the search bar and scroll over the stock name.
- Understand the Time Frames
Candlestick charts come in a variety of time frames. If you want to enter and exit a trade within a few minutes by taking advantage of minor price swings, 5-min, 10-min, or 15-min candlestick charts are used for day trading. This is known as scalping.
The time is plotted on the x-axis, and the prices are plotted on the y-axis, in a candlestick map. As a result, the candlesticks are plotted along the time scale according to the trading price range.
- Know What is Price – Action Analysis
Reading the candlestick map helps you understand market behaviour.
It is said in trading circles, “Bhaav Bhagwan hai.” means, ‘Price is God.’ By analysing the current price fluctuation of stock, you can make a prediction of the stock price in the near future.
The main aim of day trading is to determine the stock’s “trend,” or whether it will rise or fall. Price action research will aid you in this endeavour. If a stock appears to be rising, it is said to be in a ‘uptrend.’
If the stock seems to be going down, it is said to be on ‘downtrend’.
You can enter a trade in the stock to ride the trend once you’ve identified the stock’s trend. If a stock is in an uptrend, for example, you can go long (i.e. buy the stock) and exit after catching a portion of the uptrend.
- Learn About Bullish and Bearish Candles
The stock price fluctuations were determined by the power of the buyers and sellers. The candlesticks would be ‘bullish’ if buyers are more powerful, and ‘bearish’ if sellers are more powerful.
Full-bodied candles indicate strong buying (in the case of a green candle) or strong selling (in the case of a red candle) (if red candle). This is because a full-body candle represents strong buying or selling because the stock has traded at all prices in a given time range.
A candle with a long upper and lower wick shows price uncertainty because the price has gone up and down a lot but has not stayed at either stage.
Bulls are in charge when candles have a body at the upper end and a long lower wick. Similarly, candles with a lower body and a long upper wick suggest that bears are in charge.
You won’t be able to determine whether a stock is bullish or bearish by looking at only one candle. To examine the price action in the stock, you’ll need to look at a series of candles.
- Understand Trend, Corrections and Consolidation
A candlestick chart depicts the price of a stock and tells you a story about it. You will make a profitable trade if you can read the story well.
- Trends and Corrections
A trend can be described as a continuous upward or downward movement in the price of a stock over a period of time. For a day, a week, a month, or even a year, the trend could be observed.
A stock, on the other hand, can never go up or down indefinitely. During a trend, there are times when the price moves in the opposite direction for a while before returning to the original trend.
If the correction lasts for an extended period of time, it could signal a trend reversal.
You will see signs of the end of a trend if you look at the whole candlestick map. A trend will appear as a wave if you track it.
In an upward trend, for example, there will be a series of bullish candles followed by some correction candles before another series of bullish candles.
Stronger trends are shown by longer waves. If the waves become shorter, it could indicate trend exhaustion and the end of a trend.
Consolidation phases occur when the price moves in a small range and there are few opportunities to benefit.
Neither the buyers nor the sellers have control during the consolidation process. A ‘breakout’ occurs when one side gains power. A breakout can signal the start of a new trend.
You will start trading without understanding any other technical indicators if you master the art of reading candlestick charts.
Keep in mind that, depending on the business conditions, you’ll need to be versatile in your chart interpretation. However, with enough practise, you will undoubtedly produce good results.
So, if you enjoyed the post, go ahead and open a candlestick chart and begin analysing right away!