The beauty of candlesticks is that you can see the direction of price movements at a glance. Not only do you see whether the candle in total is above or below the prior one, but you can also tell by the colours whether it marked a reversal or a continuation of the trend. Certain patterns are especially critical 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.
In another case, the opening and closing prices could have been the same. Then there is no candle body but only wicks stretching up and down from the horizontal line that marks the open and close.
If the body of the candle is long with short or non existent wicks, close to Marubozu, this indicates a reasonably steady movement, possibly part of a trend. The color 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 could indicate a troubled market with big fluctuations. Trend based trading will are suspicious of Doji patterns, that may be suggestive the market is starting to become unreliable.
Naturally one candlestick by itself is not enough to form the root of a trading decision. 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 could be predicted. Knowing how to read candlestick charts is essential for both stock trading and foreign FOREX trading. Candlesticks are a record of changes in price that will help a trader to identify trends and spot upcoming breakouts and reversals or retracements. Many traders may be able to develop profitable trading systems virtually wholly on the premise of candlestick charts, and many more systems depend on them as a first or first signal. If you are coming up with systems around this type of chart you will doubtless need to test your signals over more than one time period before you open a trade.
If shown in monochrome, the candle will be unshaded or white for a price that rose in the period. In this case the open price is the bottom of the candle’s wide block and the close price is the apex of the block. In this example naturally the upper edge of the body is the open price and the lower edge is the close.
In both cases, the high in the period is the top of the vertical line or wick stretching upward from the pinnacle of the block.
Some charts nowadays are shown in 2 colors.
