In this ultimate guide, you will find all the useful information about the candlestick charts. Your success in trading needs to be able to read the stories that every candle has to tell.
The most popular chart you will come across is the Japanese candlestick chart. Reading it will not cause you any trouble. And you will be capable of interpreting the market, no matter is it ranging or trending.
Japanese candlestick creation
Every candlestick is shaped in a given time. For example, in Olymp Trade, the time varies from 15 seconds up to 1 month. The number indicates how long one candlestick is made. If we take a 15-second timeframe, one candlestick will be growing for just 15 seconds. After that time, another one will appear. And it will be also formed in 15 seconds. You can identify the price pattern by watching the candlesticks sequence.
You will obviously notice, that although the candlesticks are created in the same period of time, they do not look the same. They have different sizes. And this is caused by the price movements during the specified time. One candlestick records four price points during a given timeframe. And those are the opening price, the closing price, the lowest price, and the highest one.
All candles come with a body and two wicks (shadows or tails.)
The body of the candle is of a green or reddish color. The edges of the body correspond to the opening and closing prices.
The wicks will not always appear in a single candlestick. Sometimes the candle will have only one wick. Sometimes the wicks will form on each edge. As you may already guess, the wicks reflect the lowest and the highest prices.
At Olymp Trade, the green candle is also called the bullish candle, and the red one is known as a bearish candle. In other words, a green candle is a candle where the closing price is higher than the opening price. And the red candle is the opposite, the closing price is lower than the opening price.
|→Understanding Japanese candlestick charts is crucial for successful trading.|
|→Each candlestick records the opening, closing, highest, and lowest price points for a given timeframe.|
|→Identifying patterns in candlestick charts can help predict market trends and reversals.|
|→Proper analysis of these patterns can enhance your trading decisions but always remember to balance this with other indicators and strategies.|
Several different kinds of candlesticks on the Olymp Trade platform
The Marubozu Twins
The characteristic of Marubozu Twins is a solid body, with no wicks. As you can see in the picture above, the opening and closing prices coincide with the highest and the lowest prices of the given period (the timeframe of the chart.) You will notice the Marubozu Twins during times of high volatility on the market.
Observe the platform, look for the Marubozu Twins candles. They can appear just after economic release or as a consequence of the event connected to the observed instrument. And trading in the direction of the candles can bring you big profits.
The Spinning Tops
These candles carry a small body and small wicks. They are the indication of the market indecision when one side loses to the other. If the spinning top is noticed in an uptrend, it will indicate that the bulls lose their dominance in the market and you can expect the upcoming trend inversion.
The Doji is another indecisive candle type. It will take a form of a plus sign or a letter “T” or reversed “T”. The appearance of the Doji signifies that buyers and sellers are in a balanced proportion to each other.
The presence of the Doji may either mean a continuation of the trend or a change in its direction. It all depends on the bigger picture, in this case on how the previous candles were distributed and if their presence is observed on some technical level such as support or resistance line.
Let’s take a closer look at the 4 different Doji candlestick types you can come across on Olymp Trade.
This one finds its representation in a plus sign. The candle body forms a line which means the opening and closing prices are the same (or nearly the same.) The wicks are pretty the same length. This is an indication that bulls and bears are evenly aligned.
Long Legged Doji
The candle body is again in the form of a line, the opening and closing price is the same. The difference to neutral Doji is that the wicks are much longer. So bulls and bears battle is stronger, high and low session levels are more distant.
Dragonfly Doji is a rare candle in the shape of a capital letter “T”. The opening and closing price is almost the same. But there is only one wick. It signifies the bottom of the downtrend when the bears are in control of most trading sessions creating a long downward facing wick. However, the bulls do not sleep and they make the price go higher just before the session ends. If you want to trade Dragonfly Doji you should enter at the moment when the price breaks the top of the candle and place a stop at the lower end of the Doji.
This candle reminds me of the reversed capital letter “T”. Again, the opening and closing prices are at a similar level. But here the bulls were in control before the bears moved into the action and lowered the price. The gravestone Doji’s presence usually signifies the top of the uptrend and the subsequent reversal afterward.
- Provide detailed price information in a visually intuitive manner.
- Help traders anticipate future market movements.
- Useful for short-term trading predictions.
- Can be complex to interpret, especially for beginners.
- Predictions based on candlestick patterns are not always accurate.
- Not as effective for long-term market predictions.
|Marubozu Twins||Signify times of high volatility, often after economic releases or events.|
|Spinning Tops||Indicate market indecision and potential trend reversals.|
|Doji||Symbolize a balanced proportion between buyers and sellers, hinting at a trend continuation or change.|
|Hammer Twins||Suggest trend continuations or reversals, depending on the context.|
The Hammer Twins
There are two types of hammers, the regular one and the inverted one. The first one is a bullish candle with a small full body and one long wick at the bottom. It usually rises with an uptrend and means the continuation of the trend.
The inverted hammer is a bearish candle with a similarly small body and a wick, this time at the top. You can spot it at the bottom of the downtrend and after that, you can predict the reversal of the direction of the market.
Candles are very convenient to use on the Olymp Trade platform. I would say they are one of the best patterns you find. Each and everyone tells you a story and if only you can read them properly, the success in trading is close. Remember, that it is always wise to look at the candles preceding the one you are most interested in. Together they will tell you more.
You decide whether you want to use candles alone or in combination with other tools and indicators. Make sure you have opened an Olymp Trade practice account and experiment with different solutions.
Enjoy your trading experience!
- Q: Why are Japanese candlestick charts popular among traders?
- A: Their graphical representation provides detailed price information, making them ideal for predicting short-term market trends.
- Q: What information does a single candlestick provide?
- A: It records the opening, closing, highest, and lowest price points for a specific timeframe.
- Q: How do candlestick patterns help in trading?
- A: They can provide potential signals about future price movements and trends, aiding in trading decisions.
- Q: Are predictions based on candlestick charts always accurate?
- A: No, while they can be useful, they should be used in conjunction with other indicators and strategies for optimal results.
- Q: Are candlestick charts useful for long-term trading predictions?
- A: They are more commonly used for short-term trading predictions. For longer-term predictions, traders often use other types of charts and analyses.
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