What is a Candlestick Chart?
Candlestick Chart is the graphical representation of multiple financial data for multiples periods into a single an easy to read bars chart, The Candlestick Chart give a quick information about the open, high, low, and close price for each day. It displays this information on a key color pattern, making its interpretation easier and faster to understand. When the asset’s closing price is higher than its opening a white or hollow bar is drawn. On the contrary, when the asset’s closing price is lower than its opening a black or filled bar is drawn. The two color pattern can be customized and today is common to find the white/hollow pattern changed for a green bar, and the black/filled pattern changed for a red bar in order to make this chart faster to be read.
The Candlestick Chart has believed the Japanese traders created it during the 18th century to track their commodities trading prices. In the USA and the western hemisphere, Candlestick Chart was introduced in a book written by Steve Nison in 1991.
The position of these bars on the chart can create formations and these formations are patterns that can be identified by traders. Nowadays, there are dozens of formations or patterns identified.
Understanding a Candlestick Chart
·Candlestick is a bar that represents graphically the financial data of an asset
·Real body Is the candlestick bar where on end is in the opening price and the other is the closing price. The longitude of the body represents the market pressure.
·Long bodies represent an intense market pressure, if it is hollow a buying pressure, and if it is filled a selling pressure
·Short body represents consolidation with little price movement
·High is the highest price of an asset during the period
·Low is the lowest price of an asset during a period
·Upper shadow is a vertical line on the top of the body, which represent the high
·Lower shadow is a vertical line on the bottom of the body, which represents the low
·Filled candlestick is the representation of an asset closing price lower than its opening
·Hollow candlestick is the representation of an asset closing price higher than its opening
·Long shadows indicates that the price move far from its opening position
·Short shadows indicates that the price fluctuate or stay close to its opening price
·Long upper shadows and short lower shadows indicates that buyers dominated the market and made the price rise
·Long lower shadow and short upper shadows indicates that seller dominated the market and made the prices fall
·Spinning tops, it’s a candlestick with both shadows long and a small real body, a long upper shadow, and a long lower shadow. This represents a market indecision. When there is just one long shadow
·Doji is when the asset open and close price are almost the same. This has a very short almost linear body
·Dragon Fly Doji is when the open, high, and close price is the same but the low is away from it. It has a long lower shadow with not upper shadow in a T-like shape
·Gravestone Doji is when the open, low, and close price is the same but the high is away from it. It has a long upper shadow with not lower shadow in an inverted T-like shape
Candlestick pattern significance
There is a permanent debate about what patterns are the best for correct market assessment and predictions. About this matter, several scholars and professional traders have written several books defending their selection and rationale of using them. The Candlestick patterns easier to understand and more useful to properly forecast the market behavior and help to identify reversals and continuations are described below.
·This denoted a reversal pattern characterized by a gap followed by a Doji, which is followed by another gap in the opposite direction. The traders need to pay especial attention to the shadow of the Doji, which must completely gap between the shadows of the first and third day. This pattern predicts a price increase.
·This two candles pattern has a small body contained into previous day body with an opposite color from the previous. This pattern predicts a reversal that can be either a Harami bullish meaning that price is going to increase or a Harami bearish meaning the price is going to decline. Harami indicates market indecision with a high probability of trend reversal. This pattern can be used for Binary options of any expiry time longer than one minute
Three Line Strike
·This pattern can be either three black crows if the candlesticks are filled or three white soldiers if the candlesticks are white or empty.
·Three Black Crows are three consecutive candlestick bars black or filled with long bodies that close near the low of the day and open whiting the previous body. This pattern predicts a bearish reversal.
·Three White Soldiers are three consecutive candlestick bars white or empty with long bodies that close near the day high and open whiting the previous body. This pattern predicts a bullish reversal