So you know what candlestick charts are. Now it’s time you learn what the candlestick pattern basics are and how to use them to your advantage. The reading of candlesticks can reveal a lot of useful information about the market. This information can make you a lot of profit.
First, you need to learn how to read the information provided by a candle. So here is a quick glossary:
Bullish Candle – In financial markets, the term bullish refers to and long move. You already learnt that opening a long position means buying/expecting the rate to go up. A bullish candle is a long candle that forms when the price goes up.
Bearish Candle – In financial markets, the term bearish refers to any short (sell) move. Bearish candles form when the price moves down.
Body – The body is the space between the open and close of the candle. If the body is white or green, it means the candle closed higher than it opened. If it is red, it closed lower than it opened.
Example 1: You’re watching a EUR/USD 1hr chart. The candle opens at 1.4200 and moves up by 100 pips to close at 1.4300 giving you a bullish (white/green) body.
Example 2: You’re watching a EUR/USD 1hr chart. The candle opens at 1.4200 and moves down by 100 pips to close at 1.4100 giving you a bearish (red) body.
Wicks (AKA Shadows) – I prefer to use the term wicks since candles actually have them! The upper/lower wicks represent the highest/lowest points the candle reached during the time it was open.
What You’ve Learned About Candle Basics so Far
- There are different time frame charts ranging from 1 tick (1 second) to monthly charts.
- Bullish candles form when the rate increases. If you take a long position, you want to see bullish candles.
- Bearish candles form when the rate decreases. If you take a short position you want to see bearish candles.
- Candles consist of a body which shows the amount of pips between the opening and closing price. Wicks shows the highest and lowest price reached during the candle’s life.
- Candles open and close based on the timeframe of the chart you are looking at. So a 4 hour chart will have candles that open every 4 hours.
These are the candlestick pattern basics you need to know. Let’s get a bit more of an in-depth understanding of candles.