Candlestick chart analysis: a trick from the middle ages, and now giving the result
Many traders believe that the main indicator of an asset’s behavior in the market is its price. This feature is as transparent as possible even for beginners and not made more difficult with formulas.
To analyze the price correctly, candlestick charts are used. It is believed that Japanese candles were indeed invented in the land of the Rising Sun in the middle ages as a tool to track the value of rice.
The following characteristics are available for the trader in candlestick analysis: the cost at the opening and closing of trading, as well as the lows and highs for a certain period of time.
The body of the candle is the distance between the value of the asset at the beginning and end of trading. Also, the lines go up and down from the rectangle: these are the lows and highs per time frame. They are also called shadows.
If the asset during the compilation of the body of the candle becomes more expensive, it remains white. Otherwise, the candle is painted over: for example, in black.
Therefore, even with a cursory glance at the Japanese candlesticks, the trader determines how the price of the asset changed over a certain period, as well as specifically today. Hereof, purchase and sales strategies are formed.
Candlestick chart analysis: with its apparent simplicity is not suitable for beginners
The long shadow (the line coming from the candle) indicates that there was a strong movement in that direction. But in the future, traders redirected it: therefore, the trend changed. Conclusion: it is necessary to open positions in the opposite direction of the shadow.
Candlestick patterns are patterns that are formed for one or more candlesticks. Conclusions that a trader can make when analyzing patterns: the trend will reverse or continue its movement.
A reversal pattern means that the price of an asset will change direction. Among the most popular are called absorption, bear and bull. As well as internal and pin bars.
To recognize changes in the direction of the price, it is necessary to have trading experience. Therefore, even a relatively simple candlestick analysis is not suitable for beginners. It should also be noted that unambiguous candles is a rare phenomenon in the world of stock trading should expect surprises.