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Friday, 4 January 2019

How to Read Candlestick Chart

One way to analyze technically is to read candlestick charts. According to technical analysis, from the data given by the formed candlestick, we can predict what the next candle will be. Is the candle up or down. So if we have a picture of what candle will be formed, we can make a decision whether to buy or sell.

So, here's how to read candlestick charts:

In psychology, candles are formed because of sales pressure and encouragement of purchases. The difference in the size of the resistance and the impulse is what causes the candlestick shape to differ from one another.

Chronology of candlestick formation:


- When there are many buyers who make a purchase, the market price increases so that at the end of the period the market closes above the opening price, finally the candle rises (green).

The amount of encouragement to buy can be measured from market movements from Low to Close. The greater the drive, the greater the body candle that is formed. So the magnitude of this green body candle shows the dominance of buyers.


- When many traders make a sale, the market price decreases, so that at the end of the period the market closing value is usually below the opening price. This condition causes the candle that is formed to be red (down).

On the candle Down (red) the seller's pressure is measured from High to Close. The greater the sales pressure, the more the price will fall and further form the long red body candle. So the size of this red body candle shows the size of the seller's dominance.



To determine the direction of the next candle, there are several things to consider. That is :

1. Resistance

2. Acceleration of motion

3. Deceleration

4. Experiments Behind the direction

5. Convergent


1. TREATMENT

The point is when one party dominates the market, the candle will move in the same direction. For example, when the Buyer dominates the market, the candle will continue to go upwards. As long as there is no resistance from the seller (no sales mean) the candle is formed following the direction of the previous candle.


Until one day some traders feel the price is too high or too saturated, then the sales action appears as a form of resistance from the seller. One reason is the action of profit taking.


The form of resistance is shown by the tail of the candle. When resistance is greater than domination, then the next party who wins is the winner and there will be a change in market dominance, so the trend will reverse. From here we can predict that the next candle will reverse too.




2. CANDLESTICK ACCELERATION

The body of a candle larger than the previous candle shows enthusiasm. So when many traders are enthusiastic about opening positions, this will generate a force to move the market in the same direction as that type of enthusiasm. Moreover, there is no resistance, so we can predict which candle will be formed in the direction of the enlarged candle.




3. CANDLESTICK SLOW


Contrary to enthusiasm, the trader doubts to open a position causes the market to slow down. This doubt arises because traders judge the market is too high, too low, saturated conditions or the market is in the support & resistance zone. With no trader opening a position, there is no energy to move the market.



In these conditions we must be prepared to open a position in reverse direction, because the market will be taken over by one of the parties.

4. CANDLESTICK EXPERIMENT BEHIND THE DIRECTION

In a saturated market position there will be parties who try to end the trend, which wants to reverse the direction of a trend. But sometimes the business starts with a condition test, which is testing whether the market can actually be reversed or not. This is indicated by a long candle tail opposite the direction of the current trend.




Chronology is before the period ends as if a candle will be formed in the opposite direction with the previous candle. Towards the end of the period the candle is pulled back and closed to be in the direction of the previous candle.

The existence of an experiment behind this direction indicates that there will be a reverse direction. So that in this condition we can get ready to open a position against the trend.

5. CANDLESTICK KONVERGEN

Slowing the body candle and a resistance (number 2) show that most traders expect the market to reverse direction. But when a candle suddenly appears which shows enthusiasm remains in line with the current trend (moner 3), this is questionable.


Can be likened to when everyone wants one thing, but there is one person who wants different things, so when viewed from his energy, the energy of one person is actually small and may be said to be empty, so it is very easy to defeat.


ConditionThis convergent candle can also occur because there are certain parties who want to get the best price, even though they already know the market will reverse direction, but still attract it to be higher or lower first to get a better price, then the market is reversed .


In conditions like this, we see other indicators, if other indicators express convergence as well, then we can open a position that is contrary to the trend that occurs.





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