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Candlestick-Heart of Technical Analysis


candlestick
Candlestick-Heart of Technical Analysis

Candlestick-Heart of Technical Analysis

Candlesticks are the horror story for most of us, believe me, there is not any rocket science into it. Earlier there were only lines and bar graphs to study about the stock but the bar and line graphs are difficult to study in detail analysis and less appealing.
Japan introduces the candlestick pattern and it's being used since the 18 century in Japan. That's why it is called Japanese candlestick. While the westerns have no idea about it, around 1980, a trader named steve Nison discovered candlesticks in the western part. Due to its perfection and completeness, it becomes popular everywhere but still, it is known as Japanese candlesticks. This is favorite for most of the traders and easy to understand by everyone.
I called it the Heart of Technical Analysis because technical analysis is best with these candlesticks only and without the knowledge of these candlestick patterns, you would be unable to understand technical analysis which is very important for traders as well as investors (Technical Analysis-Why to go Technical).

Understanding the Candlesticks Thoroughly 

Candlesticks are classified as Bullish and Bearish, while generally green candle for bullish and red candle for bearish, otherwise you can use any color of your choice, The candle is divided into 3 parts : 
  1. Body of the candle
  2. Upper shadow
  3. Lower shadow

Bullish candlestick 


Bullish-Candlestick


The bullish candlestick of Xyz company Ltd is given below:
The stock opened at Rs 90, Make a high of Rs 100 and Make a low of 87 but closed on 97.
The body of the candle represents the opening and closing price of the stock while the upper shadow tells you the highest price of the stock touched and lower shadow confirms the lower price of the stock.

Bullish-Candlestick-Example

Bearish Candlestick

The red-colored candle represents bearish candle and this represents 
High     150
Low      130
Open     145
Closed  135

Bearish-Candlestick

Time Frame of the Candlesticks

You can analysis the chart for any time frame you required as for 1 day, 1 min, 5 min, 10 min, weeks, months, etc. choosing of the time frame of the candlestick is the most important aspect as it depends upon the person's requirements, for investment the requirement is totally different from trader requirement.

For better understanding we are taking a complete chart of one day candle of reliance industries:

reliance-chart

In the above chart, we see one-day candles, some are bearish and others are bullish candles and all the candles are have 3 parts upper shadow, body, and lower shadow.
There may be some candles have no upper shadow or have no lower shadow or completely missing shadow so it implies the below :

IF UPPER SHADOW MISSING IN BULLISH CANDLE 
HIGH=CLOSED
IF LOWER SHADOW IS MISSING IN BULLISH CANDLE 
OPEN=LOW

IF UPPER SHADOW IS MISSING IN BEARISH CANDLE
OPEN=HIGH
IF LOWER SHADOW IS MISSING IN BEARISH CANDLE
CLOSED=LOW

IF COMPLETE SHADOW IS MISSING IN THE BULLISH CANDLE AND ONLY IT REPRESENTS THE CENTER BODY
OPEN=LOW
CLOSED=HIGH

IF COMPLETE SHADOW IS MISSING IN THE BEARISH CANDLE AND ONLY IT REPRESENTS THE CENTER BODY
OPEN=HIGH
CLOSED=LOW 

While checking the candles, you can see the small candles without shadow, below the chart, these are the volume bars on that respected time frame, these volume bars represent the volume or the total number of shares traded on that time frame. 

volume

This blog is only about the identification of candles and how you can read the candlestick pattern, we will learn technical indicators and candlestick pattern in detail in further blogs.

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I have started this blog to educate people regarding saving and investment of their hard-earned money wisely to become big, investing decisions play a very important role in our life to meet our retirement expenses and brighten our future.

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