Candlestick Trading
Candlestick Trading
A candlestick is a visual representation of price movements in financial markets, displaying the open, high, low, and close prices for a specific time period. A candlestick is a type of price chart used in technical analysis. It consists of a body and wicks (shadows). The body represents the range between the opening and closing prices, while the wicks indicate the highest and lowest prices reached during the period.
Structure of a Candlestick
Each candlestick consists of:
- Body: Represents the range between open and close prices.
- Wick/Shadow: Shows the highest and lowest prices during the period.
- Color: Green/white (bullish = close > open), Red/black (bearish = close < open).
Each candlestick consists of four key components:
- Open Price: The price at which the stock opened during the time period.
- Close Price: The price at which the stock closed.
- High Price: The highest price reached during the period.
- Low Price: The lowest price reached during the period.
Common Candlestick Patterns
Some of the common types of candlestick trading are as follows:
Doji
- Appears when open and close prices are nearly equal, forming a small body.
- Resembles a cross or plus sign (+), indicating market indecision.
- Interpretation: Potential trend reversal or consolidation signal.
- Context Matters: More significant after strong trends or at key support/resistance levels.
Dragon Fly Doji
- Features a long lower wick with little to no upper wick, and a small body at the top.
- Shape resembles a “T”, signaling strong rejection of lower prices.
- Interpretation: Bullish reversal signal, especially after a downtrend.
- Confirmation: Requires bullish follow-through (e.g., higher close next candle).
