Intraday trading is a method of investing in stocks where the trader buys and sells stocks on the same day without any open positions left by the end of the day. Hence, intraday traders try to either purchase a share at a low price and sell it higher or short-sell a share at a high price and buy it lower within the same day. This requires a good understanding of the market and relevant information that can help them make the right decisions. In the stock market, the price of a share is determined by its demand and supply.
Also, the demand and supply of a particular stock rely heavily on the perception of a majority of investors. Further, this perception is influenced by various factors like economic conditions, political stability, social events, the performance of the company, etc. While it is impossible for traders to stay at the top of all factors that influence the share price, by carefully analyzing the market/stock’s performance, they can make efficient trading decisions. One such tool available to day traders is a Candlestick Chart. we will talk about these Candlestick Charts and offer steps to help you read them.
Reading a Candlestick Chart
The body of the candle represents the opening and closing price of the trading done during the period. Hence, traders can see the price range of the said stock for the said period at a glance. Also, the color of the body can tell them if the stock price is rising or falling. So, if a candlestick chart for one month with each candle representing a day has more consecutive reds, then traders know that the price is falling.
Above and below the body are vertical lines called wicks or shadows that show the lows and highs of the traded price of the stock. Here is a scenario:
•If the upper wick on a red candle is short, then it indicates that the stock opened near the high of the day.
•On the other hand, if the upper wick on a green candle is short, then it indicates that the stock closed near the high of the day.
Hence, a candlestick chart displays the relationship between the high, low, opening, and closing price of a stock. The body can be long or short and red or green. Also, shadows can be long or short. A combination of these displays the sentiment of the market towards the said stock.
Patterns in Candlestick Charts
Candlestick charts are an excellent way of understanding the investor sentiment and the relationship between demand and supply, bears and bulls, greed and fear, etc. Traders must remember that while an individual candle provides sufficient information, patterns can be determined only by comparing one candle with its preceding and next candles. To benefit from them, it is important that traders understand patterns in candlestick charts. For better understanding let’s divide the patterns into two sections:
•Bullish patterns
•Bearish patterns
