Candlestick Pattern Explained : The candlestick chart is a technical tool that combines data for multiple time frames into one price bar. As a result, they are more useful than traditional open, high, low, close (OHLC) bars or simple lines connecting closing prices. Candlestick patterns can be used to predict price direction once they have been completed. In this colorful technical tool, which dates back to the 18th century, proper color coding adds depth.
In traditional candlestick trading, each candle represents a full day’s worth of news, data, and price movement. As a result, candles are more useful for long-term or swing traders.
The most important thing is that each candle tells a story. The best way to view a candle is as a contest between buyers and sellers. Dark candles (red or black) indicate that the sellers won the day, while light candles (green or white) indicate that the buyers won. The battle between buyers and sellers between the open and close is what makes candlesticks so attractive as a charting tool.
- For centuries, candlestick patterns have been used to predict price direction as technical trading tools.
- Several candlestick patterns exist with intuitive, descriptive names; most of them also have an upside and downside corollary. “Abandoned baby tops” have their corollaries in “abandoned baby bottoms”; and “tweezer bottoms” have their upside corollaries in “tweezer tops.”
- A trader can refine their trading strategy by adding additional technical indicators (e.g., entry, exit).
- The candlestick chart shows the movements of current and past prices and is not an indicator of future prices.