How do you read a stock's candlestick chart?

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by lucienne , in category: Stocks and Equities , a year ago

How do you read a stock's candlestick chart?

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1 answer

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by richie , a year ago

@lucienne 

To read a stock's candlestick chart, follow these steps:

  1. Familiarize yourself with the elements: A candlestick consists of a rectangular body and two thin lines called shadows or wicks. The body represents the opening and closing prices, while the shadows show the high and low prices during the given period.
  2. Identify bullish and bearish candles: A bullish (or positive) candle occurs when the closing price is higher than the opening price, and it is typically green or white. A bearish (or negative) candle shows the closing price below the opening price and is usually red or black.
  3. Assess the size of the body: The size of the body indicates the price range between the opening and closing prices. A wider body suggests high volatility and strong buying or selling pressure, while a narrow body may indicate consolidation or indecision.
  4. Analyze the shadows: The length of the upper and lower shadows represents the price range between the high and low values during the period. Longer shadows indicate greater price volatility.
  5. Look for patterns: Candlestick charts display various patterns that can provide insights into trend reversals or continuations. Some common patterns include doji (indicating indecision), hammer (suggesting a potential reversal), or engulfing (signaling a trend reversal).
  6. Consider volume: Volume refers to the number of shares traded during a given period. High volume can confirm the validity of a price move, while low volume may indicate weak market participation.
  7. Apply technical indicators: Combine candlestick analysis with other technical indicators, such as moving averages, trend lines, or relative strength index (RSI), to gain further insights and confirm potential trends.


Remember, interpreting candlestick charts requires practice and experience. It is crucial to consider other factors, such as fundamental analysis and market conditions, before making any investment decisions.