Candlestick charts were developed in Japan over a century ago and then refined by Western countries. It came into existence because a businessman noticed the interest of the people affects the demand for products.
If people do not like a product, they demand less for it and vice versa. It is a form of options trading used in buying and selling of consumer goods.
Two words are commonly used in trading, continuation, and reversal. Continuation means to foresee if the current trend will continue. Reversal means to foresee if the direction of the price of goods will change.
What are Candlestick Charts?
They’re the visual representation of consumers’ sentiments and their effects on the cost of goods. They are decision-making tools to predict temporary prices of products.
Traders use candlestick charts to predict future prices by using historical prices. They have high and low, open and close points during the trading period.
Candlestick charts are almost like bar chats. They have lines and numbers (bars) to indicate the growth and rates of trading. The charts make it possible for dealers to understand current finance trends.
Candlestick charts have patterns that point to which trading method to use to make profits. The patterns show whether the result is bearish or bullish. The patterns can only be viewed within the charts being evaluated. When each pattern completes its work, its effectiveness decreases down the bar.
Candlestick Patterns a trader can use to make money
Candlestick patterns are found inside candlestick charts. They indicate changes in the price of commodities at a particular period. A trader needs to be well-versed in reading candlestick patterns to have successful trading.
For example, a trader wants to buy a commodity and the pattern shows the price has decreased. This is an indication to go ahead and make a purchase. Later on, if the chart shows the price of that commodity has increased, he can sell it off. He earns profits by selling the product at a higher price than when he purchased it.
Patterns are graphical representations of the relationship between the price of goods and demand for goods. There are many patterns a trader can choose from to make profits. They are:
Star patterns are of two types, morning and evening stars. They are called star patterns because they are shaped like stars.
A morning star pattern is found at the bottom of the downtrend. On the other hand, an evening pattern is found at the edge of the upward trend. Both patterns are opposite of each other.
Evening star patterns are more profitable to sellers because the sellers have more power than the buyers.
These patterns also work in reverse like the star patterns. Their names come from one pattern ‘swallowing’ the other. They are of two types, bullish (red color) and bearish (green color) engulfing patterns.
If a bull pattern overshadows a bear pattern, it is called a bullish engulfing pattern. That is when the big red symbol covers the short green symbol. Whereas, if a bear overpowers a bull pattern, it is called a bearish engulfing pattern. It is indicated by a big green symbol covering a short red symbol.
A trader should be current to know which pattern overshadows the other. He would be able to know the pattern that is more profitable during that period. If the bear engulfs the bull, then the supply of a product is higher than its demands. Therefore, the price of the product will reduce. This trend is profitable for a buyer.
If a bull engulfs a bear, it shows demand for a product is higher than its supply. Hence the price will increase and the seller will make more money.
Hammer Candlestick Pattern
Hammer pattern is another trading method to make money. It reverses the bullish pattern at the end of the downtrend. Hammer candlestick’s body pattern is either bearish or bullish. A trader should use a bearish pattern as it is more profitable.
Bar patterns (Inside Bar Patterns) are used in current market trends to know when to trade or not trade. They show the upward or downward line of the bars inside the candlestick charts.
Inside bar patterns are highly informative because they show when trading is favorable. A trader can know when prices of goods are too high, low, or reasonable enough to trade.
Using current trends to trade can affect your trading due to some factors. Consumers may have very high or low interest in some products which can increase or decrease demand. Hence, the trends may tilt towards high or low market value. Trade directions dictate when trading can begin.
know the fundamentals of candlestick charts before you start trading.
The patterns are indicators of when to trade. There is stock trading software you can use to track the market trends on candlestick charts.