For beginner traders, reading candlestick charts can seem like an insurmountable learning curve. No rhyme or reason appears, and there is no end to the amount of price and volume data that is thrown in your way.
It’s daunting, for sure. Especially when you’re just starting out.
But there is a method for madness. The method is in the models. Models reveal probabilities. And the right odds create opportunities.
More importantly, the right opportunities can create profits!
HOW TO READ CANDLESTICKS
A stock chart candlestick is a price plot over a period of time. For example, a one-minute candlestick is a chart of price fluctuation during just one minute of the trading day.
The real candlestick is just a visual record of that price action and all trading executions that took place in one minute.
Similarly, a daily or weekly candle is the culmination of all commercial executions carried out on that day or week.
How should you read a candlestick? Well, the opening tells us where the stock price opens at the beginning of the minute. The closing reveals the last recorded price of that minute. Wicks (also known as shadows or tails) represent the highest and lowest price recorded since opening and closing.
CHEESE SHEET FOR CANDLE MODELS
When putting together a lot of candlesticks, you can often get models of candlesticks. Just like the above trading patterns, there are also many individual candlestick patterns. They often come with fancy names like the following:
- Abandoned child
- Three White Soldiers
- shooting star
- hammer
- Gravestone Doji
These are just a few examples of candle models. The best way to learn them is to have a candle pattern makeup sheet handy while you’re trading or exercising. That way, if you see a nice reversal coming, you can consult your cheat sheet to see which candle pattern might form.