How To Read Candlestick Charts: A Beginner Guide

The same would apply to the lower shadow if the security opened or cryptocurrency exchange web application for a blockchain company closed at its lowest point. We like to think our buying and selling decisions are rational, but the truth is humans often make decisions based on emotions. Candlestick charts may be able to help — if you know how to read them. Candlestick patterns and fancy indicators are powerful, no doubt. But they only really shine when you use them within the context of the market’s core structure. Master the basics first, and all the other tools will suddenly make a lot more sense.

Long Shadow Reversals

• The market will try to fake you out with false signals when you ignore stock candlesticks context.
• Let’s analyze the SPY stock candlestick chart below together to understand what to pay attention to.
• Let’s take a look at an example of a combining trading strategy on a 4-hour chart of the EURUSD currency pair.

The first candlestick usually has a large real body, but not always, and the second candlestick in the star position has a small real body. Candlesticks still offer valuable information on the relative positions of the open, high, low, and close. However, the trading activity that forms a particular candlestick can vary. Long-legged doji indicate that prices traded well above and below the session’s opening level but closed virtually even with the open. After a whole lot of yelling and screaming, the result showed little change from the initial open.

• The final candlestick must be opposite in direction (color) to the previous AND entirely contained within its body.
• It suggests the move lacks the fuel to keep going and could easily reverse, trapping hopeful buyers.
• Top stories, top movers, and trade ideas delivered to your inbox every weekday before and after the market closes.
• If your plan uses lower timeframes for entries, drop one or two levels (e.g., from 4-hour to 15-minute).

Grok AI, GrokCoin & Grok: the Hype and Reality

This level is usually stacked with sell orders from traders looking to cash in their profits or from sellers who believe the price has gotten too high. Imagine you see a huge green candle break through a key resistance level. If that move happens with a massive spike in volume, it shows intense participation and conviction from buyers.

Bullish two-day trend reversal patterns

Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, the focus turns to the evidence of buying pressure and a potential bullish reversal. After a what is the difference between bitcoin and bitcoin cash long uptrend, long white candlestick, or at resistance, the focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations. Understanding candlestick charts is crucial for any trader aiming to make informed decisions in the stock market.

This comprehensive approach not only helps in making informed decisions but also aids in better risk management. Use how to buy polygon matic candlestick patterns to confirm the continuation of a trend or predict potential reversals. The context in which a candlestick pattern appears is as crucial as the pattern itself. Analyzing candlestick patterns within the broader market trends offers insights that go beyond the superficial interpretation of individual candles. Engulfing patterns, where one candle completely envelops the body of the previous one, suggest a strong shift in market sentiment and are pivotal in determining trend reversals. Candlestick charts can be set to different time periods depending on what is most useful for the trader.

How To Read Candlestick Charts and Understand Trading Patterns

Longer ones (daily, weekly) are chill and show the actual trends. Carolina Silva is a professional trader specializing in trading stocks, options, and cryptocurrencies. Over the past 7 years, she has established herself as an expert in the financial industry, actively working in both Brazilian and international markets. She was born on August 23, 1992 and currently lives in Rio de Janeiro (Brazil).

That’s volume, and it represents the total amount of an asset traded during that candle’s period. Ignoring volume is like trying to read a book with half the pages missing. It’s what helps you tell a real trend from a dangerous “fakeout.”

Putting It All Together: A Simple Reading Process

Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raised the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can be a gap down or a long black candlestick on heavy volume.

A shooting star appears at the top of an uptrend and signals a potential reversal. It features a small real body near the bottom and a long upper wick, indicating that buyers pushed prices up, but sellers regained control by the close. Additionally, candlestick charts can reveal important reversal or continuation patterns that may not be easily spotted using other chart types. By recognising these patterns, traders can make more informed decisions about when to enter or exit a trade, potentially capitalising on market opportunities.

The real power here comes from blending these indicators with your understanding of the chart’s price action. As crypto adoption grows, these technical tools become even more valuable. By 2025, the global crypto user base was projected to hit around 963 million, which is an 11.82% global penetration rate. More people in the market means more data, making these indicators even more reliable. By integrating these patterns with other technical indicators like RSI and moving averages, traders can obtain more reliable signals and refine their trading strategies.

And if you have more specific questions, you can always check out a detailed crypto trading FAQ to deepen your understanding. If your plan uses lower timeframes for entries, drop one or two levels (e.g., from 4-hour to 15-minute). By the end, you will know how to turn raw candles into useful signals. You will know what to watch, what to ignore, and how to act with a plan.

Stock Candlestick 101 – Understanding Basic Candlestick Charts

In either case, support and resistance lines or indicators could be used as additional confirmation of the pattern and a potential reversal. A candlestick is a single bar on a candlestick price chart, showing traders market movements at a glance. Each candlestick shows the open price, low price, high price, and close price of a market for a particular period of time.