Trying to figure out how to read a candlestick chart? Read on! If you are investing in stocks and other financial assets, learning how to use charts and other tools is very important. Many novice traders, however, find it difficult to read charts. Candlestick charts can be a bit tricky at first. However, with a few minutes of effort you can learn how to read them.
Candlestick charts provide a lot of information in a simple and easy-to-read format. For this reason, many professional traders turn to such charts when reading markets and examining trends. So if you haven’t taken the time to learn how to read a candlestick chart, make sure you check out the following sections to learn more about them.
So what makes a candlestick chart so unique? A candlestick chart can both show the price of assets over time, thus illustrating trends, and also show price fluctuations within a single day. A normal line graph, on the other hand, will often only show you the one price point within a given day.
The Components of a Candlestick Chart
A candlestick chart displays four different values: the open, high, low, and close. For some people, candlestick charts might represent a bit of an information overload at first. However, with a little bit time and effort candlestick charts are easy to master. By displaying these four pieces of data, a candlestick chart can also help you understand buying and selling pressures. This helps you map out and recognize trends within the market.
Take a look at each individual candlestick. You will notice that there is a box (either hollow or solid), and a thin line on top and a thin line on the bottom. The thin lines are called “shadows” and represent highs and lows of a given asset within a trading period. The shadow on top represents the high price, and the shadow on the bottom represents the low price. Shadows are sometimes referred to as wicks and tails.
The box is called the “body”. If you take a look at a chart with numerous candlesticks, you will notice that some are solid and colored in black, while others are hollow. Colored in boxes mean that prices declined for the day. In this case the top line of the box represents the opening price, while the bottom line represents the closing price. If the box is hollow, this means that prices gained for the day. In this case the top portion of a box represents the close, the bottom of the box represents the open.
Why Use a Candlestick Chart?
If you’ve never used a candlestick chart before, they can seem pretty intimidating at first. Compared to a normal bar chart, they present a lot of information. Once you learn how to use a candlestick chart, however, they become very easy to read. You’ll be able to gain a lot of information with just a quick glance. For this reason, many traders prefer candlestick charts to regular line graphs or bar charts.
A candlestick chart will help you recognize not only opening and closing prices, but also volatility within a given trading day. This can be very important for you as you attempt to assess risks and potential future movements. Candlestick charts also help you understand buying and selling pressures. A hallow box generally indicates buying pressure, while a solid box represents selling pressure.
Compared to normal charts, a candlestick chart provides more information. Believe it or not, it is actually quite easy to read with a bit of practice. This means you will be able to get a lot of information about markets, including prices, trends, and pressures, all with a quick glance through a chart. So if you are serious about investing and digesting data, you should take some time to look through candlestick charts so you can get a good grasp of them.