There are so many ways of plotting the prices of equities today. Naming a few – line, point and figure, area, and candlesticks.
Which chart plotting method should you use?
I was using line charts because they were the easiest to read; I was able to tell the direction of the market at one glance.
However, most traders rely on candlestick charts. This is because candlesticks tell a lot more than trends and the opening and closing prices. Valuable insights to the psychology of market participants (ie other traders and investors) can be gained.
Discover about your trading psychology and develop the right mindset here.
Understanding the psychology of market participants is important as this allowed me to drastically improve on my entries and exits. This provided me with a profitable edge in the market.
Knowing this, I stopped using line charts and started to learn about candlesticks.
A Short History
Candlesticks charting is thought to originate from Japan. More specifically from a rice trader, Munehisa Homma, in the 18th century.
Trading using candlesticks turned him into a very wealthy man.
Since then, candlesticks have been widely used.
Not familiar with candlesticks charting? You’re in for a treat!
How To Read Candlesticks?
As mentioned, candlesticks tell you more than its opening and closing prices. Candlesticks also tells you the high and low of a period.
Here’s how you can read candlesticks.
Here’s a shortcut to tell if a candlestick is bullish or bearish – its color. A bullish candlestick is green while a bearish one is red.
Let’s learn the parts of a candlestick in the next image.
You are ready to be introduced the common types of candlestick patterns and their significance.
Common Candlesticks Names
There are many candlestick patterns. You’ll see the more common and significant ones in the table below.
Knowing the names of the following candlestick patterns isn’t as important as knowing the significance. Their significance sheds light to the psychology of the market participants which will benefit your trading results.
3 Things You Must Remember About Candlesticks
#1 Bullish candlesticks are in green while bearish candlesticks are in red
#2 Candlesticks tell you the psychology of market participants
#3 The names of candlestick patterns aren’t as important as their significance
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