Martin Pring – Introduction to Candlestick Charting

Martin Pring – Introduction to Candlestick Charting

Description

Candlestick

Candlesticks are the most preferred chart choice for traders, when compared to other charts. to line chart, bar chart and the point & figure chart. Because it is visually appealing, traders love it. Candlestick Charts can also be very easy to Read and understand. It includes a body (rectangle section of the candle), as well as shadows or wicks, which are lines above or below the body. Every candlestick has an open, high and low, as well as a close price. The candlestick chart’s time frame is set by the trader according to his trading horizon.

Interpreting Candlestick Chart

Open – This is the first price that is traded. It is indicated by the top or bottom of a candlestick.

High – This is the highest price that was traded in the time frame for the candlestick. It could be either the open, close, or a high hit during the candlestick’s time period. The upper shadow will not appear if the open was the highest priced.

Low – This is the lowest price that was traded during the candlestick. It is indicated by the shadow below the body (known as the lower shadow).

A candlestick’s color is determined by whether the closing price (or last traded price, if incomplete) is higher or lower than the opening price. The candlestick is in the process of being formed, but the price can change constantly so the candlestick may alter. While the open is still fixed, the other parameters (i.e. High, low, and close can change constantly. The time of the candle’s life span is to The closing price of the last trade is taken as an end price. A new candlestick then forms. to Send the price movements over the next time period.

Close – This is the close of the candlestick. It can be indicated by the top, or bottom of its body.

Price Range – This is the difference in price between the upper or lower shadows. It indicates how much the price has moved over the specified time period. It is calculated by subtracting the high and the low candlesticks. The volatility associated with the candlestick is indicated by the range. The range indicates the volatility associated with the candlestick. (Range = Low – High).

Understanding candlesticks charts can be one of the most important steps to learn how to read them. to trade. Trades can only be made once a trader has acquired the necessary knowledge. to If a chart is understood, the interpreter can then proceed. to The other aspects of technical analysis, and the development of trading strategies according to his needs.

Use of Candlesticks

Candlesticks are a popular choice to Form patterns that are used by traders to interpret to Indicating a continuation or reversal to an existing trend. It can also be used to Identify short-term trading opportunities Candlestick charts are used differently by different traders. Candlestick Patterns should be used with the current trend.

Candlestick Also, tends to It acts as an indicator that gives traders an advantage when entering or exiting trades. It is also a signal that a trend has reversed. to The rest of the technical indicators. It is therefore widely used in short-term trading and volatile markets.

Candlestick This tool complements the majority of technical analysis indicators, and it works well with western technical tools.

Candlestick Patters can also be tendered to They act as support levels or resistance levels, and signal the beginning of a pullback.

Time frame

Most candlestick patterns develop over a 1 year period.-They take 3 days which is short-Term patterns that are valid for 10-15 trading sessions Hanging man and hammers, for example, only require one day. Two days are required for engulfing patterns and bullish belt holds. The pattern requires three days to complete: the evening stars and three white soldiers to complete.

Preceding Trend

Candlestick Patterns are interpreted according to their position within the trend. A reversal candlestick design is valid only if it forms at the end the current trend. There should be an earlier trend to reverse. A prior downtrend is required for bullish reversals, while a previous uptrend is necessary for a bearish reverse. Trend lines, moving Averages, peak/trough analysis, and other aspects of technical analysis can be used to determine the direction of a trend.

Tussle among bulls and bears.

Candlestick The depiction shows the fight between bulls and bears during the given time period.

• Long green candlestick indicates that the trading session was controlled by the buyer’s i.e. bulls.
• Long red candlestick indicated that the trading session was controlled by the seller’s i.e. bears.
• The long shadow at the bottom indicates that the bears dominated the price, until the bulls took over and made a strong recovery.
• A long upper shadow signifies that the bulls dominated prices until the bears retook control.
• A small candlestick means that neither bulls nor bears can control the prices during the session.
• A long shadow between the upper and lower edges indicates volatile trading sessions, with both bulls and bears gaining control but being unable to execute. to Keep the advantage.

1) Bullish Hammer

Definition

This pattern is found at the bottom or in a downtrend. This pattern is a single candlestick that has a large lower shadow and a smaller body at the top.

Identification Criteria

• Market is experiencing a downtrend.
• It is noted that a small body is found at the top of the trading range. It doesn’t matter what the color of the body looks like.
• This candlestick has a lower shadow that is at least twice the length of its body.
• There is (almost!) no upper shadow.

Candlestick Interpretation of Patterns

In a downtrend, the Bullish Hammer is visible. Trades are marked by a sharp selloff. After the decline comes to an end, price almost returns to The highest point of the day. Market crashes to Continue to sell. This price movement lowers the previous bearish sentiment which causes short traders to They are becoming more uneasy about their bearish positions. If the body of the Hammer is blue, then the situation looks even better for the bulls.

Buy/Stop Loss Levels

The confirmation level is defined as the top of the Hammer’s body. For a buy signal, prices should be above this level to Be initiated. The low point of the candlestick pattern is the stop loss level.

2) Bullish Belt Hold

Definition

Bullish Belt Hold is a single-candlestick pattern. It’s basically a blue Opening Marubozu (longer candlestick with no lower shade) that occurs in a downtrend. It opens at noon, then rallies against current trends in the market. to Near the top.

Identification Criteria

• Market is experiencing a downtrend.
• The market closes at the low of the day, but gaps down.
• It is evident that a long, dark blue body has no lower shadow.

Candlestick Interpretation of Patterns

With a large gap in the direction that the current downtrend is heading, the market opens lower. However, the market quickly changes sentiment and moves in the opposite direction. Fear among traders with short positions leads to fear. to The market rally is further aided by the covering of short positions.

Buy/Stop Loss Levels

The last close of the transaction is considered the confirmation level. This level is required for buy signals. to Be generated. The candlestick pattern’s low point is the stop loss level.

3) Bullish Engulfing

Definition

This pattern is characterised by a large body of blue that surrounds a previous smaller body of red, which occurs during a downtrend. The blue body doesn’t have a color. to It will not only engulf any shadows left by the previous candle, but it will completely engulf your entire body.

Identification Criteria

• Market is experiencing a downtrend.
• On the first day, a red body is seen.
• The second day is when the blue body completely envelopes the red body.

Candlestick Pattern Interpretation

Although the market is experiencing a downtrend, sellers can be seen with the occurrence of a yellow body on the first days but with low volumes. The market opens lower on the next day. It looks as if there’s going to The bearish trend will continue, but the selling pressure is losing momentum and the bulls are in control throughout the day. In the end markets, the buying force triumphs over the selling force. to Close to the open of the previous day.

Buy/Stop Loss Levels

The last close is considered the confirmation level. If prices move above the closing candle, a buy signal will be generated. The candlestick pattern’s lowest point is the stop loss.

4) Bullish Harami

Definition

The pattern is composed of a large red body first and a small blue body second day. It’s completely within the range of the red body. It is a common pattern. to act as a reversal of the pattern.

Identification Criteria

• Market is experiencing a downtrend.
• On the first day, a red candlestick will be observed.
• The second-day blue body is completely engulfed in the first body.

Candlestick Interpretation of Patterns

The market is in a downtrend, with a bearish mood. There is also heavy selling as reflected by the red body. Short sellers feel fearful when prices rise the following day. This can lead to to The price is affected by the covering of short positions. to It is likely to increase further. However, some short sellers still expect the market to rise. to Correct and keep shorting, thereby limiting the rise. A small blue body appears. This may signal a trend reversal since the second day’s small real body shows that the bearish power is diminishing.

Buy/Stop Loss Levels

The confirmation level is the lowest price at which prices have closed or the middle of the first red bodies, whichever is greater. To be considered a buy signal the price should rise above this level. to generate. The stop loss level can be defined as the lowest point of the two candles.

5) Bullish Doji Star

Definition

It’s composed of a red candlestick and a Doji, with a gap at the bottom the next day. This pattern is found in a downtrend, and it indicates that the trend will change.

Identification Criteria

• Market is experiencing a downtrend.
• A red candlestick must be used on the first day.
• Next, we will observe a Doji the second morning that has gaps.

Candlestick Interpretation of Patterns

The market is currently in a downtrend, and a large red candlestick further supports it. The market opens lower the next day with a gap down and trades within a small range. Doji formation occurs when the closing and opening prices are identical. Bearish sentiment was common during the downtrend, but now there is a change implied by the formation a DojiStar. This shows that both the bulls as well as the bears have equal control. It has decreased. It is not positive to Further shortening at the current levels.

Buy/Stop Loss Levels

The confirmation level is defined as the midpoint of the gap between the Doji and the prior day’s candlestick. For a buy signal, prices should rise above this level to generate. The stop loss level can be defined as the lowest point of the two candles.

6) Bullish Morning Star

Definition

This is a 3-Candlestick pattern that indicates a bottom reverse. It is made up of a long candlestick that opens lower and a red candlestick. to form a star. The following day we have a blue candlestick whose closing price is well into the first session’s red body.

Identification Criteria

• Market is experiencing a downtrend.
• On the first day, we observe a red candlestick.
• The second day we see a brief candlestick that points in the opposite direction to the downtrend.
• The third day is marked by a blue candlestick.

Candlestick Pattern Interpretation

A downtrend is underway and the formation a red candlestick on day one confirms this. Bears are still driving down the price, as evidenced by the formation of a short candlestick with a gap on the second day. The narrow price movement of the second day suggests indecision. The third day is a blue body candlestick where price closes well into the first day’s red body. This indicates a trend reversal.

Buy/Stop Loss Levels

The last close is the confirmation level. For a buy signal, prices should rise above this level to Be generated. The lowest point of the candlestick pattern formation is the stop loss level.

7) Bullish Morning Doji Star

Definition

This pattern is made up of three candles, which signals bottom reversal. It consists of a red candlestick, followed by a Doji that usually gaps down. to form a Doji Star. On the third day, we have a blue candlestick whose closing price is well into the first session’s real body.

Identification Criteria

• Market is experiencing a downtrend.
• On the first day, we observe a red candlestick.
• Then we see a Doji on the second morning with a gap.
• On the third day, a blue candlestick will be observed.

Candlestick Interpretation of Patterns

The red candlestick of the first day confirmed that a downtrend was underway. The Doji with the gap shows that bears are still in charge. The narrow price movement between the open and close is a sign of indecision. The third day sees the body for the blue candlestick rise above the previous day and closes within the red body.

Download immediately Martin Pring – Introduction to Candlestick Charting

Buy/Stop Loss Levels

The last close is considered the confirmation level. For a buy signal, prices should rise above this level to Be generated. The stop loss level refers to the lowest point in candlestick pattern formation.

8) Bullish Piercing Line

Definition

This is a bottom-reversal pattern that has two candlesticks. A red candlestick appears the first day when a downtrend is underway. The second day is a gap down to a new low, but manages to close it. to closes more than halfway into the prior candlestick’s red body, leading to The formation of a strong and blue candlestick.

Identification Criteria

• Market is experiencing a downtrend.
• The first day is marked by a red candlestick.
• The second day, we witness a gap opening but the candlestick still manages to open it. to Close to half way through the first red candle’s body

Candlestick Interpretation of Patterns

The market is currently experiencing a downtrend. This view is reinforced by the first red body. The market closes gap down the next day, proving that bearishness persists. Bulls then take control after this bearish open. The market surges toward the end of the session, resulting in a close way above the previous day’s close. The short sellers feel afraid and may consider covering their positions. This causes a further increase in prices.

Buy/Stop Loss Levels

The last close is considered the confirmation level. For a buy signal, prices should rise above this level to be generated. The lowest point of candlestick pattern formation is called the stop loss level.

Bullish Three White Soldiers

Definition

This pattern is indicative of a market bottom reversal. This pattern is marked by three blue candlesticks that move upwards. The prices rise at a higher level as the day progresses.

Recognizing Criteria

• Market is experiencing a downtrend.
• Three blue candlesticks with slightly longer lengths were observed.
• Each candlestick is located within the previous day’s body.
• Candlesticks are closing at higher levels than the previous day, as they move closer to their highest points.

Candlestick Interpretation of Patterns

The pattern can be seen in a prevailing downtrend when prices are reaching new lows or at the bottom. Next, we see the first candlestick in blue which attempts to attempt to The trend is moving upwards. This trend continues for the next two consecutive days, making new highs at closing. The bears feel fear and are now considering closing their short positions, leading to higher prices to Keep going.

Buy/Stop Loss Levels

The last close is considered the confirmation level. This level should be crossed if prices are to confirm. The lowest point in the formation of a candlestick pattern is the stop loss level.