Wednesday, 8 January 2020

Reading candlesticks is simple. No need to memorize formations or names, we only need to analyze candlesticks based on their basic elements.

Actually, you don't need to memorize all the patterns for candlestick analysis. You only need to know the big picture of how to read candlesticks, because each candle is basically able to inform the price structure, the strength of the trend, the dynamics of the Buyer against the Seller, and the projected direction of the price will move later.



Four Basic Elements as a Guide to Reading Candlesticks


Step 1: Candlestick War

Before we begin to explore the important elements for candlestick analysis, we must have the right perspective first. Think of it as a price movement due to a war between Buyers and Sellers.


Step 2: Understand the Context (Big Picture) 

When Candlestick Analysis Need to be underlined, candlesticks cannot be observed in just one pattern, without knowing the dynamics of prices beforehand. Candlestick analysis must be examined by taking into account past price movements.

4 important elements for reading candlesticks:


Element 1: Body Size of the Candlestick

 Candlestick body size is a good starting point because we can get a lot of information from it.


Element 2: Candlestick Axis Length

 (Wick) Candlestick axis length informs the volatility of price movements.


Element 3: Body and Axis Ratio

From here we can get a big picture in reading candlesticks.


Element 4: Candlestick Body Position

This element is a development from the previous element.



Examples of Candlestick Analysis on Chart

At this point, we have examined each of the basic elements for candlestick analysis. Now, with this knowledge we can use it to dissect price charts.


Example 1

Note the direction of price movements on the chart below. The following is a description of information on price movements based on candlestick analysis:

During a downtrend, the candlestick displays a long red body with little axis or no axis at all. That is, the Bearish momentum is still strong.

 At the bottom, we find resistance. One candle is not enough to ensure a reversal signal. A new reversal is confirmed when the price closes higher than the candle opening.

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