How to Analyze Candlesticks in Trading ?

How to analyze candlesticks in trading is vast topic to learn and follow. This article delves into Candlestick Analysis for Trading. This comprehensive guide aims to cover all you need to know about Candlesticks and their behaviors. Once you finish reading, recognizing Candlestick patterns will become simpler. Here, we will focus on understanding four key aspects of using Candlestick Analysis for Trading.

Below are the areas which we will cover in this article.

• Understanding Candlesticks.
• Knowing what candlesticks mean.
• Reading a Candlestick.
• Learning how to interpret a single candlestick.
• Reading Charts with Candlesticks.
• Understanding charts using candlestick patterns.
• Finding Opportunities with Candlesticks.
• Identifying chances to use candlestick patterns for trading.

What is a candlestick?

Candlesticks reflect the actions of buyers and sellers. They show who is controlling the trading at a given time. These candlesticks swiftly reveal the balance between buyers and sellers. Patterns created by multiple candles give insight into market movements. Understanding candlesticks is crucial for effective day trading.

Components of a candlestick

• The High
• The Open
• The Low
• The Close
• The Change(BODY)
• The Range

Reading Candlestick Charts

Body of candle (open/close)

In every bar or candle, an equal number of contracts or shares are traded within that specific timeframe.When a bar closes with a higher price, it indicates that buyers were more determined and forceful in their direction compared to sellers. Conversely, in a bearish wide range bar, sellers were more dominant. As a result, the body of the candle demonstrates how much influence they had on the price movement and the strength behind that movement.

Three body types of candlestick

1. Narrow range candle
2. Average candle
3. Wide range candle

We can see from above image, body of candlestick gives us much major information.

What does length of wicks tells us in candlestick? We can see in below image.
Always pay attention to the length of the wick on a candle, whether it is at the top or bottom. This is crucial because it quickly reveals the strength, weakness, and indecision in the market, and most importantly, it indicates where experienced investors are getting involved.
If the wick is longer, it means the price changed a lot during the candles total time, but ultimately got rejected. This indicates the presence of either supply or demand. The lower part of the wick shows support, while the upper part acts as resistance.

Image below represents relation between body and the wick

What is Pin Bar pattern (Reversal or Continuation) in Candlesticks ?

A pin bar is a special candlestick shape used by people who analyze how prices move in financial markets like stocks or currencies.

Picture this candlestick with a small body in the middle and a long stick either at the top, bottom, or both. If the long stick is at the top, it means that even though prices tried to go up a lot, they ended up falling back down. If the long stick is at the bottom, it means prices tried to go down a lot but came back up.

Think of it like a little traffic light. If it’s green at the top, it tried to go up but turned back. If it’s green at the bottom, it tried to go down but turned back.

Traders watch for these pin bars because they might mean the direction of prices could change. If it’s a green light at the bottom, prices might go up. If it’s a green light at the top, prices might go down.

Remember, traders use pin bars along with other signs to decide if they want to buy or sell something. It’s like putting together puzzle pieces to understand what might happen next in the market.

How to take position with help of pin bar candle?

Sample Example for executing trade with Bullish and Bearish Pin bar candle confirmation.

FAQ’s