Understanding and How to Read Candlestick Patterns
Candlestick patterns emerged and became popular in the 17th century after being often used by many Japanese. This pattern is quite complex, so it needs to be studied in a serious way so that it can be useful in making business profits.
Initially, candlestick patterns were used to see the value of the escalating price of rice in Japan. However, slowly this pattern is also used as a barometer in trading. True to its name, this pattern has a shape similar to that of paraffin. Reliable traders say that this pattern is very important to understand so they can recognize when to enter and leave when trading.
In a simple way, a candlestick pattern is a pattern that is on a chart in Forex trading. There are many different types of candlestick patterns to be found and these types of patterns testify to the status of which market player is more powerful in Forex trading.
This pattern is generally used by traders to see the price of large, small, open, and closing deposit securities at certain periods. By recognizing various candlestick patterns, you can monitor price movements and identify profitable capabilities and minimize the risk of loss.
Method of Reading Complete Candlestick Patterns
After mastering what a candlestick pattern is and its benefits, it's time to practice reading the pattern by looking at these next few things.
1. Price position marker
There are 4 markers that can be used to identify the price of a capital instrument in a candlestick pattern, namely:
- Open: the price at which the trade was opened
- Close: the price after the trade is closed
- Low: lowest price
- High: highest price
As a complete diagram, you can see the initial and closing price points on the candlestick pattern and see the pattern of price movement at the low and high points. Moreover, you can also see clearly the shape of the axis (upper shadow-lower shadow) to speculate on the strength of market signals.
2. Candle color marker
The method of reading complete candlestick patterns is to look at the visible markers. There are 2 colors that appear in the diagram, namely green and red. Both have a patterned form of paraffin which is also called a body.
The green (bullish) candle shows that the close price is greater than the open price, on the contrary, the red (bearish) candle shows that the close price is smaller than the open price.
If the candlestick pattern is green, then the pattern is about to move up. Conversely, when it is red, the candle pattern will move to the bottom. Not only recognizing the price position, the two colors also display data about trading stocks or goods.
Even so, there are also some trading applications that do not cause these two colors, so you must be able to understand them first if you want to read candle patterns without colors.
3. Candle wick
Another marker that can be read from candle patterns is the axis (shadow), which is price instability data that moves according to the length of the candlestick. The dimensions of the body of the wick are affected by volatility, so when there is volatility, the wick of the candle will be further away from the body.
When the wick of the candle extends to the bottom, it means that market players are pushing the price down. Even so, it's not sturdy enough to keep the price low. At the same time, market players want to make purchases, so that the longer the market price goes up. This situation is also called a bullish reversal.
Meanwhile, the axis that extends upwards indicates that market players prefer to take profit from being forced to hold on. This situation is known as a bearish reversal.
