A candlestick chart documents a given time period of human or algorithmic (e.g. investment robot) behavior, influenced by market-, company- and media news, rumors and assumptions, which affects the stock price.
Being able to use knowledge of previous known structures, like support and resistance levels and understand the influence of mass-human emotional behavior (irrationality, neuroticism and fear), you have a better chance of trying to predict a trend. This is where candlestick patterns can be of big value when trying to time when you should buy or sell.
CANDLESTICK LIFECYCLE
A candlestick represents the price movement for a specific time frame, e.g. a minute, hour, day, month, year, etc. depending on the selected time frame. For simplicity, let's say we're in a day graph and the two candlesticks below represents Day 1 and Day 2.
Note:
- The black lines, below and above a candlestick body (in the shadow areas) are called wicks.
- Bulls = Buyers/demand/optimists
- Bears = Sellers/supply/pessimists.
Day 1 (green candlestick)
- Bears slapped the price to its lowest (bottom wick on green candle).
- Bulls gored the price to its highest (green body + top wick).
- Bears managed to slap the price down a little, before closing (top wick above green body).
- Overall a bullish (green) day.
Day 2 (red candlestick)
- Starts where it closed yesterday.
- Bulls gored the price to the top (top wick on red candle).
- Bears slapped the price way down (bottom wick + red body).
- Bulls resisted and managed to gore the price up a little, before closing (bottom wick below red body).
- Overall a bearish (red) day.
PATTERN INTRODUCTIONS
CANDLESTICK PATTERNS
Introduces the many candlestick patterns, their advantages and disadvantages as a trading technique.
CHART PATTERNS
Introduces the most relevant chart patterns, and how to trade the chart patterns.
HARMONIC PATTERNS
Introduces harmonic patterns, which are price action patterns involving Fibonacci ratios between subsequent price movements.
The theory suggests that when three or four Fibonacci ratios converge, there is a higher probability of reversal.
There are many different harmonic patterns like bats, crabs, butterflies, gartleys, sharks, cyphers, and more.
REVERSAL PATTERNS
When a price pattern signals a change in trend direction, it is known as a reversal pattern; a continuation pattern occurs when the trend continues in its existing direction following a brief pause. Technical analysts have long used price patterns to examine current movements and forecast future market movements.
BEARISH PATTERNS (TOP ROW)
Double Top, Head and Shoulders, Rising Wedge.
BULLISH PATTERNS (BOTTOM ROW)
Double Bottom, Inverse Head and Shoulders, Falling Wedge.
CONTINUATION PATTERNS
Continuation patterns are an indication traders look for to signal that a price trend is likely to remain in play. These patterns occur in the middle of a trend and signal that once a pattern has completed, the trend will most likely resume.
BULLISH PATTERNS (TOP ROW)
Falling Wedge, Bullish Rectangle, Bullish Pennant.
BEARISH PATTERNS (BOTTOM ROW)
Rising Wedge, Bearish Rectangle, Bearish Pennant.
BILATERAL (NEUTRAL) PATTERNS
Bilateral Patterns are formed in the shape of triangles with the possibility of Uptrend and Downtrend. When we collaborate on the patterns with other technical indicators we can confirm the trend and enter at the right time. Entry to this kind of pattern is very tricky.
EXPLORING AN Interactive Candlestick chart
This is an interactive chart, showing the weekly chart of the Tesla (TSLA) stock. You can zoom, via mouse wheel, and interact with the chart, via widget, below. In the widget top bar you can select other stocks, timeframes, chart style and indicators.
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