How to Read Candlestick Charts

The open represents the initial deal of the period, while the close represents the last trade of the period. The candle illustrates the opening price and the closing price for the relevant period, while the wick shows the high price and the low price. Green candles mean the crypto has gained value during the period, while red candles mean the crypto lost value.

  • Black Marubozu form when the open equals the high and the close equals the low.
  • Likewise, a bearish engulfing candlestick pattern indicates a change of market trend, from an uptrend to a downtrend.
  • He has experience analyzing various financial markets, and creating new trading techniques and trading systems for scalping, day, swing, and position trading.
  • Bullish engulfing candles are potential reversal signals on downtrends and continuation signals on uptrends when they form after a shallow reversion pullback.
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These patterns tend to repeat themselves constantly, but the market will just as often try to fake out traders in the same vein when the context is overlooked. Candlestick charts tend to represent more emotion due to the coloring of the bodies. It’s prudent to make sure they are incorporated with other indicators to achieve best results. The reversal implications of a dragonfly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragonfly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick or at resistance, the long lower shadow could foreshadow a potential bearish reversal or top.

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Two of the most reliable candlestick patterns are the Morning Star and Evening Star indicators. They rely on three days’ worth of pricing How to Read Candlestick Charts to identify a trend that may signal a reversal. Engulfing patterns are also fairly reliable since they compare two-day trends.

Set the chart type to candlestick, and select a one-minute time frame so you’ll have lots of candlesticks to look at. Thebullish engulfing candle patternis a combination of a red and green candlestick where the first candle is red . After closing the red candle, a green candle appears, engulfing the body of the previous candle, and it closes above the last candle’s high. On the other hand, the bearish engulfing candle is the opposite of the bullish body engulfing. Here, a green candle should appear first, and a red candle should engulf the body of the first candle. It’s not easy to memorize all the candlestick patterns right from the start.

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This pattern indicates that the selling pressure is cooling, and a bull is on the horizon. Support is a price level that is expected to serve as a minimum in the short term. A Bid-Ask Spread is the difference between the price to buy an asset and the price to sell that asset. Candlesticks reflect market sentiment and can often be used to predict what is going to happen next. “Open” is the initial price at which the asset was being traded at the beginning of that specific timeframe. Buyers and sellers move markets based on expectations and emotions .

How to Read Candlestick Charts

Dragonfly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.