How to read the Candlestick Chart? – (Analysis for trader)

You want to know how the Candlestick Chart works and how to analyze it correctly? – Then you have come to the right place. We will explain the structure of the candlesticks and show you how to read the chart formation correctly. With more than 6 years of experience in this field, we will give you additional tips & tricks.

Candlesticks are the most popular method of traders to analyze the market because this chart presentation offers much more information than the normal line chart in online trading. The formations are adaptable to any market (asset) and to any timeframe (time unit). Read through our article to get a better insight.

What is a Candlestick and where it comes from?

A candlestick is a chart representation in the form of a candle. It is a special representation in contrast to the well-known line chart. These candles can be used to analyze the price development of an asset in more detail using several pieces of information.

The candlestick chart originally comes from Japan and since the 18th century has been a method for traders to better analyze the markets. This representation has only advantages for a trader. In the following sections and pictures, we explain the exact structure. In addition, you can find more general information on the Wikipedia article for Candlesticks.

Trading with candlesticks is one of the most accurate methods in the market because these candles make it very easy to find out exact price brands and levels in the market. In the picture below, you can see the typical candlesticks:

Typical Candlestick Chart

The properties of the candle chart

Candlesticks can be applied to any asset. Furthermore, the candlesticks are provided with an expiration time. It always takes a certain period of time until a new candle is formed or the old candle has expired. Of course, there are also a variety of settings. You can watch a candle in each time period.

  • Applicable to any asset (Stocks, Forex, CFDs, ETFs etc.)
  • The candles always have a certain expiration time. After this, a new candlestick is building.
  • Candlesticks are available in various time units

The meaning of candlesticks:

The structure of a candlestick is always the same. In the pictures below, you will find a detailed explanation of the structure. The candle always has a candle body. The candle can be either bullish or bearish.

  • Bullish: upward candle, which shows a price increase
  • Bearish: downward candle, which shows a price drop
  • Doji: The opening and closing price is the same (no price change)

The candlestick also displays the high and low of the entire period of the candle. The closing price can be below the high or above the low. Look at the following illustration.

Bullish candle:

Bullish Candlestick

A candle can only contain various information. It is important to note that a candle always has a certain expiration time. There is always a fixed period in which the formation develops. The timeframe can be set in the trading platform of your Online Broker.

Just like an upward candle, there is also a downward candle. These candles differ only in the opening and closing price. Most trading platforms display this difference graphically in different colors. Personal adjustments are of course also possible.

Bearish candle:

Bearish Candlestick

An important formation of a candlestick is the Doji (picture below). It indicates that the course has the same opening as the closing price. You the high and low we see that there was a price change but the price has returned to the starting point. With the right strategy, this candle can produce a reversal signal in the chart.

Doji Candlestick

Summary:

With the candle view you can read a lot of information from the market. The high and low are displayed in a certain time frame and you can see the opening and closing price. This information can be used for your own trading strategy.

  • Candlesticks have a certain expiration time
  • The expiration times can be set variably in the trading platform.
  • The candle view provides a lot of information for trading.

Which trading platform is suitable for beginners?

Since online trading, every broker has offered trading platforms with candlestick charts. Many promising strategies are based on this representation. In addition to this representation, other settings are usually offered, such as line chart, Heikinashi and more. Log in to any trading platform and start the analysis yourself with the candlesticks.

In more than 6 years of experience in trading, we have tested over 50 providers and now present you our top 3 brokers for investing.

Our recommended providers for candlestick trading:

Broker:Review:Spreads:Advantages:Open Account:
1. BDSwiss
5 out of 5 stars (5 / 5)
Read the review
Starting 0.3 pips+ Individual offers
+ Trading signals
+ Personal service

2. Tickmill
5 out of 5 stars (5 / 5)
Read the review
Starting 1.0 pips+ Options
+ Best platform
+ 24/7 support

3. Vantage FX
5 out of 5 stars (5 / 5)
Read the review
Starting 0.0 pips + 2$ commission per 1 lot+ Good conditions
+ ECN Broker
+ Personal service

The most important Candlestick Formations: Very effective

Now you should know how a candlestick works. These chart representations give interesting interpretation possibilities to a trader, which we will deal with within the following sections. It is especially important for many traders to see a trend reversal. This is not easy in most cases and requires a lot of practice.

The following candle formation can help a trader to recognize the trend reversal in the market faster:

Pincandle/Hammer Candlestick

Hammer/Pincandle: Candle with long wick and small body

The hammer (Pincandle) has a long wick and a small candle body. We can see that in a certain period of time the price rose extremely and then immediately fell again. Thereupon this wick and a high or low form. This is the possible sign of a trend reversal.

Additional interpretations say that many market participants have been absorbed in this candle. All buyers (bearish pin candle) that have been set long in this candle are in minus after the end of the candle and may have to close the position. This may accelerate the trend reversal.

As an experienced trader one knows that this candle formation represents a so-called “V” in the market. The market shot exactly in one direction and immediately reversed. This candle often occurs where stop losses (risk limits) were triggered by other traders. Many traders use this knowledge to enter the market directly.

Pincandle Features:

  • Long wick
  • Small candle body
  • Trend change directly in the candle
  • Buyers or sellers are surprised and may have to close positions

Candlestick Pattern recognition by using the candlestick chart

Candle formations can be combined with various trading strategies. Whether indicators or just the chart, a trader can customize his trading style. In the picture below we see the function of a pincandle in connection with a resistance point in the market. Candle formations can act as an entry signal.

At certain prices in the market, resistances or support form. This comes about because the majority considers certain prices to be particularly expensive or cheap. The market moves supply and demand. If such a place is identified, one can look for the optional entrance with the Hammer (Pincandle). These patterns often occur at the edges of a sideways phase.

Restistance is a price point where the market has already been several times and has managed in vain to break through it. Very often you see the hammer as a reversal signal. With the right analysis this candlestick formation can also be used in a trend.

Personally, it is enough for us to trade only a certain candle formation at market levels. This prevents false signals for us and we can focus completely on a simple strategy.

Summary: 

  • Hammer or Pincandle is very well suited for a trend reversal.
  • Pay attention to this candle formation at striking levels in the market
  • Simplicity is better in the end

Our conclusion on the Candlestick Chart and the Analysis

On this page, we have given you a detailed explanation to the known candle formations. Now you should be able to read them correctly. From our experience, you need some practice as a beginner until you are completely familiar with the presentation.

The candlesticks offer more information to a trader than a normal line chart, which is why it is advisable to switch to candle form. Worldwide, there are infinite formations and strategies on this topic.

Our personal tip is to create your own trading style and refine it bit by bit. Carry out your own back tests with candle formations or use them actively in the trade.

Good luck with trading.

The Candlestick Analysis is the best way to develop and adapt trading strategies. You get more information than by other chart types.

Andre Wi.Professional Trader