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Technical analysis guide

Candlestick Pattern Basics

Reading candlestick patterns is a crucial aspect of price action-related trading within technical analysis. Candlestick patterns provide valuable insights into market sentiment and potential future price movements. When effectively interpreted, these patterns can help traders develop profitable trading setups. However, the first step in mastering candlestick patterns is understanding the individual candles themselves.

How To Read Candlestick Patterns

Bullish and Bearish Candles

A bullish candle and a bearish candle are the two primary types of candlesticks.

Bullish Candle: Represented by a green rectangle, it indicates that the closing price is higher than the opening price.
Bearish Candle: Represented by a red rectangle, it shows that the closing price is lower than the opening price.

Candle Bodies and Wicks

The thick part of the candlestick, either green or red, shows the range between the opening and closing prices.

For a bullish candle, the bottom of the body represents the opening price, and the top represents the closing price.
For a bearish candle, the top of the body indicates the opening price, while the bottom shows the closing price.
Wicks: The thin lines extending above and below the candle body represent the highest and lowest prices reached during the time period.

The upper wick stretches from the top of the candle body to the highest price.
The lower wick extends from the bottom of the candle body to the lowest price.
Understanding these basic components is the foundation for interpreting more complex candlestick patterns. These patterns often leave clues about potential market movements, providing traders with signals to enter or exit trades. Mastery of candlestick patterns, therefore, is an essential skill for anyone engaged in technical analysis and price action trading.

Key Takeaways

Technical analysis begins with reading candles
Green candles’ bodies open at the bottom of the body
Red candles’ bodies open at the top of the body
The wicks display the candle’s highs and lows

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