Tutorials on Chart Patterns

If the prices represent opening and closing during the day, who and what decides when something opens and closes? A bar chart is a little more complex. Understand how to read Neutral Candlestick Formations. This means that if the price closed higher than it opened, the candlestick would be green. Tutorials on Chart Patterns.

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Line Charts

With a paper chart, you can crop the chart for your specified time frame, where online tools often enable the user to change the view to a specific time frame, for example, 1 day, 5 days, 1 month, 3 months, 6 months or 1 year. Observe your currency chart for the desired time frame. You will see a line graph that represents changes in currency value over that period of time. Look at your line graph against your Y axis. The Y axis, or horizontal axis, for a currency chart most often indicates a comparative asset price.

When a line fluctuates, it shows how your selected currency performs against the currency or asset that is represented in the Y axis.

Check your X axis. The X axis for your currency chart represents your time frame. You will see that both of these axes have scaled, segmented values, where your line graph fluctuates in a variable way. Look for specific chart structures. Advanced traders and others look for specific visuals in a currency chart to try to predict which way future prices will go.

Understand candlestick charting to take advantage of this advanced financial resource. Candlestick charts show a range of traits for a specific trading day, with a top and bottom that illustrate price movement. Many currency charts include candlestick charting, especially online ones, and by observing these charts correctly, you can know much more about the price than just how it has changed over a period of time. Look for items like Fibonacci retracement. A Fibonacci retracement is a specific kind of price spike or dip where a reversal can signify a general trend.

Read up on this sort of predictive tool and apply it to your currency chart observation. Look for movement against moving averages. Moving averages tell you how the price has changed over a longer time frame. These may be helpful when you are viewing your currency chart. Understand what the chart consists of. There are no calculations required to interpret Candlestick Charts.

They are a simple visual aid representing price movements in a given time period. Each candlestick reveals four vital pieces of information: Understand that candlesticks display the relationship between the open, high, low and closing prices. This means that they cannot be used to chart securities that have only closing prices. Interpretation of Candlestick Charts is based on the analysis of patterns.

Currency traders predominantly use the relationship of the highs and lows of the candlewicks over a given time period.

However, Candlestick Charts offer identifiable patterns that can be used to anticipate price movements. There are two types of candles: A white empty body represents a Bullish Pattern Candle. Understand how to read the Bullish Candlestick Formations: The Hammer is a Bullish Pattern if it appears after a significant downtrend. If the line occurs after a significant uptrend, it is called a Hanging Man.

Trend reversal patterns are essential indicators of the trend ending and the start of a new movement. They are formed after the price level has reached its maximum value in the current trend. The main feature of trend reversal patterns is that they provide information both on the possible change in the trend and the probable value of price movement.

Your capital is at risk. Leveraged products may not be suitable for everyone. About Us About Us. Tutorials on Chart Patterns. As we briefly discussed earlier, the location of the Engulfing Bullish Candlestick for this particular trade was the most important factor. When you apply Candlestick patterns with additional technical confluence , it provides for a powerful combination of factors that can help increase your odds of winning.

And this is exactly what professional traders try to do. If the same Engulfing Bullish Candlestick pattern appeared at the top of a longstanding uptrend, it would have also signaled additional bullishness in the market, but that signal would be much less powerful. Since the market was already in an uptrend, it may not have had the legs to push the price much higher.

However, on this instance, the market was already trading in a range for several days. As you may know, when the market consolidates for a while, it is basically setting up to breakout in one direction or the other. The formation of this bullish Candlestick pattern provided a signal as to of which way the market was about to break.

If you knew how to read a simple Candlestick pattern like the Engulfing Bullish pattern, you could have entered this trade at the right time and earned a handsome profit with this high reward to risk ratio setup.

In figure 5, we can see two different Candlestick patterns triggering two different trades. On the first occasion, the Engulfing Bearish Candlestick pattern appears during a downtrend that provides traders with a trend continuation signal. On the second occasion, a Three White Soldiers Candlestick pattern emerges at the bottom of the downtrend, which triggers a new bullish trend.

Once the Engulfing Bearish Candlestick broke below the support level, it opened up the possibility of a trend continuation.

It is strongly recommended that beginning traders stick to using Engulfing Bearish or Bullish patterns to confirm a trend reversal, as those tend to be higher probability trades. However, this particular example in figure 5 demonstrates that if you know how to use the confluence of support and resistance levels along with Candlestick patterns, these can be used to trigger trend continuation signals as well.

In the second trade, the Three White Soldiers Candlestick pattern emerged near the bottom of this downtrend. At this point, professional traders for preparing for the market to reverse the prevailing downtrend. The prudent course of action would be to wait for the market to confirm this signal, which means that unless the price broke above the high of this Three White Soldiers Candlestick pattern, you would not have entered the trade.

Hence, the reason why an asset is moving in a certain direction is often not necessarily important to technical traders. Instead, they are more interested in interpreting what the price action is doing at the current moment and how they can take advantage of that. Candlestick chart reading can be most useful during these volatile periods of irrational market behavior. Traders can apply overbought and oversold technical indicators like Stochastics or Relative Strength Index RSI to find out when such irrational market conditions may be present.

For example, by using oscillating technical indicators , a trader will first wait for a signal that the market has moved into an overbought or oversold condition. At that point, they would look for a reversal signal of the prevailing trend.

Many times, this reversal signal will come in the form of a candlestick formation. Formation of a simple or complex Candlestick pattern during such market condition confirms and verifies the impending contrarian price action for the trader.

Placing their order in the market using this combination of technical factors can significantly improve the accuracy of their trades. Once you learn how to correctly read Candlestick patterns and combine this skill as part of a broader trading strategy, then you will likely improve the consistency of your market entries and your overall performance as a trader.

By now, you should be able to see the value of investing your time to learn how to read a Candlestick chart, and how to interpret the various simple and complex Candlestick patterns that we discussed.

Bar Charts

Both the bar chart and the candle chart contain the same data: the high for the period (the day), the low, the open and the close. In a candlestick chart, however, the names are changed. Candlestick charts can play a crucial role in better understanding price action and order flow in the financial markets. Reading a Forex Chart with Candlesticks. Before you can read a Candlestick chart, you must understand the basic structure of a single candle. Before we analyze charts and look for stocks to buy or sell, let’s explore several basic questions: what markets to trade, how to manage risk and why keep a trading journal. Where will your trading profits come from? The money you hope to take out of the markets currently resides in other people’s accounts.