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What Are Candlestick Charts and Why Do Traders Use Them?

July 25, 2018 By Matt Thomas Leave a Comment


Analyzing Market Psychology Through Candlestick Charts:

Candlestick Charts are a visual representation of how a stock, ETF, or other security has performed during a specific time period. Each candle on the chart efficiently displays the open, close, low, and high for that particular time period. The price range between the open and close forms what is known as the “real body” of the candle. This part of the candle is color-coded to show whether the asset closed higher or lower than the open. If the close is lower than the open, then the candle will be red. If the close is higher than the open, then the candle will be green. Each end of the real body may also have what’s known as a “shadow” or “wick” that displays the low and high. In whole, candlestick charts provide an easy-to-decipher visual representation of supply and demand in the market.

When monitoring the price movements of a particular stock or ETF, they can sometimes appear random and unpredictable. But when technical analysis using candlestick charts is applied, sometimes you can see clear patterns emerging. Areas of support and resistance can be pinpointed, profit targets and stop loss zones can be identified, and strong trade plans can be created. For example, if a group of candlesticks on the chart have long lower wicks that keep bouncing off a particular price level, it might be a good time to take a long position for move to the upside. Your stop loss could be if the price breaks below those wicks and the profit target could be the next level of resistance, wherever that may be (it depends on the chart). For both short-term and long-term traders alike, candlestick charts are extremely popular for analyzing potential entry and exit points. Overall, candlesticks allow traders to gauge the emotions of the market (bullish/bearish/indecisive) and make better predictions on where price is headed in the future.

Related Post: What is The Candlestick Course? Master Technical Analysis With Steve Nison

Filed Under: The Daily Dose: Questions For Stock Traders Tagged With: Trading System Basics

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