The practice of buying and selling equities on the same day, with no open positions remaining at the end of the market day, is known as intraday trading or day trading. Their primary activity is purchasing stocks at a discount and then reselling them at a profit. In rare situations, they also short-sell shares by purchasing them at a premium and then reselling them at a loss the same day.
You must have a thorough understanding of the market and be aware of market trends to engage in such a dangerous activity. The trader must be able to make the appropriate decision at the right time in order to profit in this situation. The price of a share on the stock market is influenced by several different factors, including supply and demand.
You are trading incorrectly if you do not analyze price charts before you place a trade. If you continue to trade without the use of technical analysis, there is a significant risk that you will lose everything you have invested. And for the same reason, employing any tools or performing technical analysis before investing is essential. Technical analysis’s fundamental components include the stock’s price and volume, both of which are crucial inputs.
Tools like candlestick chart patterns have shown to be quite useful for traders. This post will go into more detail about how to use this tool as a novice in this sector and how to read them.
What is a candlestick chart?
A candlestick chart is a type of financial graph that often displays changes in the price of commodities, equities, or derivatives. It resembles a candlestick with a vertical rectangle and wicks at the top and bottom. The candlestick’s top and bottom display the open and closed prices. The price is displayed at the top and bottom of the candle, respectively.
Since a Japanese guy by the name of Homma created them in the 1700s, candlestick charts have been in use. He understood that there was a connection between the price of rice, supply, and demand, and the emotions of the rice traders. The open, the high, the close, and the low were represented by each candlestick on the chart he created, which also included the four other dimensions of a trading period. After the West caught up with him a century later, the rest is history.
Types of candlestick patterns
The most typical candlesticks to be found on candlestick charts are red and green. These candles serve as a representation of the price spectrum throughout time. For instance, each candlestick on a 5-minute chart represents a 5-minute time period, and so forth. Let’s now examine in greater detail what each candle means.
Red candles: The red candles signify a closing price that was less than the opening price at the conclusion of the time period.
Green candle: The green candles depict the closing price that is greater than the opening price at the end of the time period.
How to read a candlestick chart?
Trading without taking a peek at price charts is equivalent to winging it. The two most crucial inputs for technical analysis are price and volume. All forms of technical analysis are built upon them. Price charts make it easier to visually analyze price and volume data.
The most common type of price chart utilized by traders is the candlestick chart. The price graph is shown as a succession of candles on a candlestick chart, hence the name of the type of chart.
A quick glance at a candlestick chart reveals useful information, including the trend, bullishness or bearishness, and volume.
Each red and green candle on the chart contains data on the opening, closing, and price range of trade for that particular time period.
Each candle shows the price range over a specific time period. Each candlestick in a 5-min candlestick chart denotes a 5-minute interval; in a 10-min candlestick chart, a 10-minute interval; and so on.
Details of candlesticks
Green candles indicate that the opening price was greater than the closing price at the conclusion of the time period.
Red candles indicate that the closing price was less than the opening price at the conclusion of the time period.
Let’s imagine that at 9.30 am, when the stock price is Rs. 230, you open a 10-min candlestick chart of the stock. The candle will be a green candle if the price rises and reaches Rs. 233 at 9.40 am.
Candle body: The body of the candle, which is highlighted in green or red, shows the opening and closing price. In a red candle, the down end of the body corresponds to the closing price, and the upper end to the opening price.
Similar to a red candle, a green candle’s bottom end represents the initial price, and its upper end represents the final price.
Candlewick: The wick of the candle is represented by the top and lower shadows. The candle’s wick represents the price range at which the stock traded throughout that period.
Details of candlesticks
For instance, if the price fluctuated between Rs. 225 and Rs. 234 during the course of ten minutes, the candle’s wick would have been between Rs. 225 and Rs. 234. And the formed body will cost between Rs 230 and 233.
Which intraday candlestick pattern is the most reliable?
The shooting star candlestick pattern is the greatest and most dependable candlestick pattern for intraday trading.
How should a novice day trader read candlestick charts?
Before you start day trading, there are a number of patterns that you should be familiar with. Additionally, each of these candlesticks has a unique meaning. You should read the aforementioned post first as a novice because it will provide you with some insight into how to read candlestick charts for day trading.
Over time, each candlestick forms pattern traders can use to find key support and resistance levels. There are a lot of different candlestick patterns that can be used to find opportunities in the market. Some show how buying and selling pressures are balanced, while others show market hesitation or continuation patterns.