These charts are helpful for all long term investors and day traders.
One can construct the chart using the data set containing open, close, high and low values for each time.
The final image that comes in display contains:
Hollow or Solid Portion: Body
The line above and Belo Body: Lower and Upper shadow respectively.
Top of the Upper Shadow: Mark the highest price
Bottom of the Lowest Shadow: Mark the lowest trading price.
One gets the solid body during the selling pressure (Bearish tendencies) when the opening price is more than the closing price.
The hollow body is during the buying pressure (Bullish tendencies) when the closing price is more than the opening price.
These charts are represented using different colors that depend on the price action of the security for a particular day.
The complete red color is when the closing price is below the opening price.
In general, any color is used to represent the candlestick chart. The white, blue or green color represents higher trading than the previous one. On the other hand, black or red color reflects less trading than the previous day.
Thus, the color representation is used to determine the trading pattern of the instrument at a particular time.
In all, the candlestick chart analysis help traders to know the opening price, closing price, highest trading price and the lowest trading price of the stock on a particular day.
Each candlestick represents information related to the market dynamics like high, low, open and close.
Along with this, it represents the bullish or bearish price action.
With the proper analysis of candlestick charts, you can increase the probability of increasing profit in intraday trading.
Here are two major reasons why to use candlestick charts for day trading.
1. Assist in Knowing the Entry or Exit Time: Candlestick chart analysis helps in determining the right time of entering or exiting the market depending on the momentum, breakout, or trend.
2. Helps in Management of Trade: When doing day trading, it becomes very important to know the risk. With these Japanese charts, it becomes easy to manage risks and pros and cons of holding or closing the current position.
Although, the candlestick chart analysis is quite tricky it is helpful in identifying the current market state and subsequent direction of price.
One and identify the potential path of the price that further help the trader to craft an optimized strategy that helps in reaping good benefit and profit.
In case you are looking to get started with stock market trading or investments in general, let us assist you in taking the next steps forward:
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