A price action analysis is useful as it can give traders an insight into trends and reversals. Steve Nison, considered the “grandfather” of candlestick analysis, says that candlesticks key you into what traders and investors are thinking at any given time. This is followed by three small real bodies that make upward progress but stay within the range of the first big down day. The pattern completes when the fifth day makes another large downward move.

I was having tremendous trouble reading a price chart on how to determine its direction and what the candles were telling me and what it was saying as price reached my key levels! You calmed my heart with this information..your knowledge is wonderful.. Please can you offer some guidance on keeping a position in regard to timeframe. I use the daily to identify support and resistance and then use the 4H chart to plan my entry. But what I seem to find is that I hardly ever hold a position more than 8 hours if I’m lucky. Am I letting my emotions get the better of me, or is my approach wrong.

Bearish Engulfing Pattern

This motivates bargain hunters to come off the fence further adding to the buying pressure. Bullish engulfing candles are potential reversal signals on downtrends and continuation signals on uptrends when they form after a shallow reversion pullback. The volume should spike to at least double the average when bullish engulfing candles form to be most effective. How to Read Candlestick Charts The buy trigger forms when the next candlestick exceeds the high of the bullish engulfing candlestick. A hammer candlestick has a green real body, a long lower wick, and a short or non-existent upper wick. This is a bullish pattern that may indicate a reversal (i.e., that the security in question is about to begin going up in price after falling).

They give you plenty of information without making it difficult to absorb. As you can see in our chart example of Adobe above, the stock momentarily broke https://www.bigshotrading.info/ it’s trend of higher lows. However, when this occurred, buyers got so aggressive in buying the stock at those levels, pushing it back up very quickly.

Introduction to Candlesticks

Japanese Candlestick charts are the preferred choice of many traders since the price moves are easy to see and trade signals can be spotted quite quickly due to the colors. Play around with the free charts offered on TradingView to get a feel for candlesticks and how to interpret them. The open and close are marked by the “fat” part of the candlestick. This is called the real body, and represents the difference between the open and close. If the close is higher than the open the candle is green; if the close is lower than the open the candle is red.