The basics of understanding candlesticks
The most standard type of charts to trade with are Open High Low Close (OHLC) and Japanese Candlestick charts. There are 5 key aspects to understanding candlesticks compared to OHLC.
- They clearly represent the needed information
- Less emphasis is put on the wicks or tails of candlestick charts.
- OHLC bars are more difficult to read therefore understanding candlesticks are easier in comparison.
4 Key parts to understanding candlesticks
Part 1: Candlestick Chart time periods.
The Time period you choose for your chart is represented by the start of each bar and the end of each bar. Each candlestick will represent the time that you have selected for your specific chart. A one hour Japanese candlestick chart will start and end at an even time.
Part 2: Understanding candlesticks
The body, real body, wick, tail, and shadow of the candlestick are the respective parts of the candle stick chart. We explain each in detail, and show you how to identify highs, lows, opens, and closes.
Part 3: Doji Candlesticks
Doji candlesticks, or Doji bars refer to when the open and close of a candlestick is at or near the same level, therefore leaving no discernible body, or real body to the candlestick.
Part 4: Candlestick opens and closes not matching up
A brief explanation of why some candlesticks don’t match up with their opens and closes. This is often due to lack of volume in the market. The prices that appear on your charts are an attempt to give you the clearest representation of the actual traded prices.
The goal for this video on how to trade candlesticks is not for an overly technical analysis of the chart, but an understanding of the different, more basic, aspects of learning how to trade. A begginer trader must understand all respective parts of the tools (trading platforms/charts) that they use.
Other types of non time based charts use Japanese Candlesticks
If you like the style of Japanese Candlesticks, but want to try other charting methods, there are many options. Two of the most popular are Range Bars, and Tick Charts.
Range Bar Charts:
Instead of time based charting, range bars use the Japanese Candlestick charts, but do not work off of time intervals. They provide you with a specific range of trading (say 4 points) that, once reached, completes the bar/candlestick.
Tick charts use a method of transactions instead of time while still using the Japanese candlestick charts. For each transaction (no matter the size) they count towards a pre set limit. Once that limit is reached, a new candlestick is formed.