Candlesticks actually reveal a bunch of information about price movements. They provide information about the stock’s opening, closing, high, and low prices for two different days. Each candlestick represents a specific time interval, and the body of the candlestick is shaded or colored to indicate whether the stock price increased (green/bullish) or decreased (red/bearish) during that period.
Traders analyze candlestick patterns every day, making decisions based on the shape, length, color, and combine those indicators with other indicators.
Red candle: The red candle indicates bearish movement, which means that there were more people interested in selling the stock rather than buying it. Whenever there is a red candle, the top of the wick indicates the high price, the upper end of the body is the opening price, the lower end of the body is the closing price, and the low point of the wick indicates the low price.
Green candle: The green candle indicates bullish movement, which means that there were more buyers than sellers during the time period. Whenever there is a green candle, the top wick indicates the high price, the upper end of the body is the closing price, the lower end of the body is the opening price, and the low point of the wick indicates the low price.
Note: Past chart performances as well as chart patterns, candlestick patterns, and other strategies illustrated on our website may show the history of the investment associated with those performances, but is not necessarily indicative of future investing results.
In this example we were looking at $GOLD and found a nice candlestick to explain. The inverse hammer has a longer upper wick and a way smaller lower wick. This candlestick indicated bullish behavior as buyers were trying to beat sellers who were not strong enough to bring the price down. Once accomplished this concept, buyers got the overhand and moved the price up as we can see here in the picture.
In this example we were looking at $USOIL and found another nice pattern to explain. The spinning top pattern screams for indecision in the market. The green and red candle were both almost equally long with relatively small wicks and almost identical bodies. This indicated a period of consolidation or almost no change in price, which occurs usually after a significant up- or downtrend. In this case we had a significant uptrend prior to this pattern and we can see that the price moved significantly higher shortly after. In order to work this pattern, we want to make sure that not only the bodies are similar, but the wicks as well.
Three White Soldiers
We were looking at $META, which gave us a sweet example of a pattern that many traders are familiar with. Those are three green candles on three consecutive days with small wicks, which open higher and close higher than the previous days. We call those the Three White Soldiers. This pattern indicated bullish behavior as we saw buying pressure and an uptrend following the pattern.
These are some basic patterns. Again, patterns do not work out every time. There are many other factors that determine price movement than just the shapes of the candles. However, those are pretty cool to identify and work with for experienced and non-experienced investors.
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