Candlestick Chart Analysis In Trading
Trading is an art of carrying the business. Indeed, it is one of the risky streams of business which requires not only hard work but also the considerable percent of luck. The trading market is highly uncertain which may lead to a downfall of investment, income, business etc. Thus a trader needs to apply all possible estimation, analysis, strategies while trading to mitigate the risk. While diversification of investment is one option to mitigate the risk, a trader must, however, apply the trading strategies to earn a decent profit. One such trading strategy used by many traders including a trading robot in the stock market, cryptocurrency market, Forex, derivatives is the candlestick chart. It is interesting to read and learn more about it.
A candlestick chart is a price chart displaying the price movement of securities at different stages for a specified period which could be a day, month etc. Each candlestick represents the day’s trading consisting of information such as the open, close, high and low. They exhibit the trading pattern of particular security/currency over the period of time.
Candlestick chart was initially developed in the 18th century by Japanese. The 18th -century invention has been altered, modified and are used even today to analyze the financial market. Candlestick chart is considered to be a staple tool for every trading platform in the financial market. The intense information and clarity make this tool popular amongst the other tools. By chaining together every candle, a trader shall analyze the trading pattern over the months and forecast the future market.
Understanding a Candlestick chart
A trader looks for three main components from a candlestick chart. They are the upper shadow, lower shadow, and the body. Each candle represents the price movements during a period which would be a day or a part of the day or a particular time etc. As mentioned above, there are four main data points in every candlestick.
1) Open: Open represents the price of the first trade of the security/currency for the specific period
2) Close: Close represents the price of the last trade of the security/currency for the specific period.
3) High: High represents the highest price traded in the market for the specified period
4) Low: Low is the lowest price of the security traded in the market.
The above data points are connected to the main components. The highest point is displayed in the upper shallow while the lowest point is displayed in the lower shallow. The open and close points form the body of the candle. When the close point is higher than the open, the body in the candlestick is colored green indicating a net price gain. Vice versa represents net price decline which is colored red. Based on this chart, traders analyze the price movements and execute the trade accordingly.