In one of my previous posts entitled, "How to Start Trading" I briefly introduced where one can go to start looking at whichever charts they're interested in viewing. In the previous post, I showed a similar chart to this one here:
In this post, I'll be writing about how to read the charts, specifically the red and green bars on the charts, also known as candlesticks.
Before I address how to read them though, I first want to say that the X axis on the chart is time and the Y axis on the chart is price. Now that you understand what the axises are, let's take a look at the red and green bars.
Here's an image that I made outlining the parts of a candlestick:
A candlestick has three main parts: an upper wick, a body, and a lower wick.
Of those three main parts, it tells you where the price has opened, closed, the low and the high for that particular bar in time.
The colour indicates whether the price has gone up or down. A green bar means that price has gone up. Conversely, a red bar means that the price has gone down.
Those are the basics on how to read candlesticks. Candlesticks will always look different but the idea behind them remains the same.
Now you're probably thinking or asking, "So what? What's the point of being able to read the candlesticks?" The reason why it's important is because these candlesticks tell a story of what's happening. The bars give you a hint at what people are thinking regarding the price.
Reading the individual bars may not help you. However, reading the bars together and collectively can give you insight on what might happen next. You can think of this as being able to read letters of the alphabet. Being able to read a single letter won't necessarily help you, however, being able to read a group of letters that form a word will help you.
As I don't want to overwhelm you with too much, I'll leave you with that. In a future post, I'll go over some candlestick formations, patterns, and names.
However if you're interested in learning more about candlesticks, a book that has helped me greatly when I started learning about them is "Japanese Candlestick Charting Techniques: A Contemporary Guide to the Ancient Investment Techniques of the Far East" by Steve Nison. I would highly recommend checking that book out.
Here's a video that I made that may be able to help you out. I go through some live examples of candlesticks:
Just before ending this post, I want to say that there are no guarantees in trading, only probabilities. Think of traders as weather forecasters, except they're betting money on a predicted outcome. So for example, weather forecasters look at graphs and charts and based on what they see, they assign a probability of that outcome happening (20% rain, 10% snow, and etc.) and this is the same with trading. Traders mentally place probabilities on an outcome based on what the charts are showing at that moment. By learning to trade, you can increase the odds to be in your favour though.
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