How To Read Candlestick Charts in Investing
When analyzing stocks, the default view to study them is the line chart. This is a great way to get in-depth with stocks as beginners. I still use this chart daily. When you start to get deeper into stocks you will begin to hear people mention a candlestick chart. This type of chart gives more information on the factors behind the ups and downs of a stock price. Or the price action. They can help to determine possible price movements based on past patterns.
When you first see a candlestick chart it is a bit overwhelming. I’m going to break it down in an easy to understand way. Candlesticks are better than line charts because they show more information.
Candlesticks show price points, open, close, high, and low. They can be "solid" or red. This means the close was lower than the open. This signifies going down. If it was a regular bar chart the line is going down or selling. Candles that are "empty" or green mean the close was higher than the open. This signifies going up for buyers.
I like to view the candles as red and green. The wicks or shadows are the little lines you see coming out of the top and bottom of the candlestick. These wicks represent the high and low prices of that day or whatever range you’re viewing. It means it hit that number but that’s not where the stock finished.
If the upper wick on a down candle is short that means the open that day was near the high of the day.
If the upper wick on the up candle is short. It means the close was near the high that day.
A quick helpful tip for candlesticks. Read the top of green candles and the bottom of red candles.
When you are making your candlestick chart you can set it for any period that works for you. I usually do monthly and weekly. But if you’re a day trader you will want to see daily or even by the minute. It all depends on how you read charts. If you pick a daily chart then each candlestick would represent one day.
Now that you understand the basics you can begin to use it to see bullish or bearish patterns. A bullish pattern means that the price is likely to rise. Whereas a bearish pattern means that the price is likely to fall. A few patterns to look into are: Hammer pattern, Engulfing patterns, Bullish Rising Three, and Shooting star.
To learn more about investing make sure to subscribe to my YouTube channel.
PIN IT
Disclosure: This post may contain affiliate links, which means we may receive a commission if you click a link and purchase something that we have recommended. Helping Tiffy to keep making cool posts and videos.