What Is Candlestick Trading?
A candlestick is a form of a private chart that is utilized as a part of technical analysis when displaying the closing, open, low, and high prices of a security for a specified period of time. This has a long history, as it originated from the rice merchants and traders in Japan, as they used it for tracking daily momentum and market prices hundreds of years prior to it becoming popularized in the United States. Below, we will tell you more about candlestick trading so you can understand what this is and how it works.
When using a candlestick chart, the wide part of it is known as the “real body” and it informs investors as to whether the closing price is lower or higher than the opening price. If the stock closed is higher it will be white/green, or if the stock closed lower it will be black/red.
Understanding the basics of candlestick trading
The shadows on a candlestick will show the lows and highs for the day, and how they compare with regards to the open and the close. The shape of the candlestick will vary based on the relationship between the day’s low, high, opening, and closing prices.
Candlesticks are a reflection of the impact investor sentiment has on security prices, and they are used by technical analysts for determining when trades should be entered and exited.
As mentioned, this is based on a technique that was developed during the 1700s in Japan for the purpose of tracking the price of rice.
Candlesticks are a great technique when it comes to trading the likes of futures, foreign exchange, stocks, or any other sort of liquid financial asset.
The long green/white candlesticks indicate if strong buying pressure exists. This will usually indicate that the price is bullish. Nevertheless, this needs to be considered in the context of the structure of the market, rather than individually.
For instance, a long white candle is more likely to have more significance if it forms at a major price support level. This indicates the price is bearish.
A favorite bullish candlestick reversal pattern, which tends to be known as a hammer, happens when the price moves considerably lower after open, and then it will rally to close at near to the high. We use the term hanging man to refer to the equivalent bearish candlestick. These candlesticks will typically look similar, with a square lollipop-like appearance, and they tend to be used by traders who want to pick a bottom or top in a market.
Final words on candlestick trading
All in all, there are many different approaches that are used in the world of trading today, and a lot of them are rooted in different historical approaches and techniques that were used. We hope that this guide has helped you to better understand candlestick trading and the significance of this. As is the case with anything in the world of trading, practice and experience is a must with this.
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