What are candlestick patterns and which is the most reliable?
What are candlestick patterns? In the world of trading, candlestick patterns depict the price fluctuations of a trading product over the course of a single trading day. Firstly, the opening and closing prices are shown as a difference in the length of the candle’s body. Secondly, the color of the candlestick body on a given trading day indicates whether or not the price increased or decreased. Thirdly, profit (bull/bull) is shown in green, while loss (bear/bear) is shown in red. Fourthly, the opening price is at the bottom of the candlestick body if the price rises. Next, the price opens at the top if it falls. Lastly, the upper and lower lines of the candlestick body or “shadow,” which is sometimes referred to as the wick or tail, show the highest and lowest prices for the day.
What are candlestick patterns?
Using candlesticks, traders can see how a trading product’s price changes on a daily basis. For each price point, you can tell by how far down the bar you can see. First of all, the price may rise or fall above or below the open or close before the retracement, as indicated by the price’s shadows, wicks, or tails, which extend beyond the bar. Moreover, the color of the candlestick indicates whether or not the trading product’s closing price was higher or lower than its initial opening.
More than two centuries ago, these candlesticks were made in Japan. Using drawings, Munehisa Homma demonstrated the day-to-day fluctuations in the price of rice. These drawings were not widely known in the West until the 1980s. In a book titled “Japanese Candlestick Techniques,” Steve Nison was the first to call these methods by their proper name. Candlesticks are based on the idea that patterns can be spotted by an experienced trader. Indicators of an impending trend change, reversal, and breakout can be found in these patterns (price is outside the normal range of volatility).
How do candlestick patterns reveal the market sentiment?
In the world of candlestick trading, there are a wide variety of patterns. In theory, day-to-day fluctuations could reveal the market sentiment. One theory holds that the shape of the candlesticks themselves can indicate a shift in momentum and perspective. After a string of setbacks, for example, a particular pattern might suggest that the market is transitioning from fear to hope. Markets may soon reverse and begin a rally if this is the case.
Continue to learn more about the popular candlestick patterns that are well known by traders.
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