Overview
This lecture explains how to quickly read candlestick charts, interpret key patterns, and identify trends and momentum shifts for trading decisions.
Candlestick Basics
- Green candlesticks mean the price increased (bullish); red candlesticks mean the price decreased (bearish) during the chosen time period.
- The candlestick "body" (rectangle) shows the range between open and close prices; "wicks" (lines) show the high and low.
- For green candles: open is at the bottom of the body, close at the top; for red candles: open at the top, close at the bottom.
- The top wick's end marks the highest price, and the bottom wick's end marks the lowest price in the period.
- A large body indicates strong momentum, while a small body (doji) indicates indecision.
Interpreting Candlestick Charts
- Each candlestick corresponds to a selected time frame (e.g., 1D for one day, 1W for one week).
- The price axis (right) shows price values; the date axis (bottom) shows the time.
- Green candles indicate price appreciation; red candles indicate price depreciation.
- Multiple consecutive red candles indicate downtrend; multiple green candles indicate uptrend.
- Mixed colors and sideways movement indicate market indecision and consolidation.
Identifying Trends
- Uptrend: higher highs and higher lows, showing buyers are in control; look for long (buy) trades.
- Downtrend: lower highs and lower lows, showing sellers are in control; look for short (sell) trades.
- Trend change signs (uptrend to downtrend): lower low forms, or lower high forms after higher highs.
- Trend change signs (downtrend to uptrend): higher high forms, or higher low after lower lows.
Recognizing Momentum
- Momentum gain: tight price movement (no wide swings) or growing candle size in trend direction.
- Momentum loss: wide swings after tight movement, shrinking candles, or a color change after many same-color candles.
- Momentum loss in uptrend: large-to-small green candles, or red candle after multiple greens (possible reversal).
- Momentum loss in downtrend: large-to-small red candles, or green candle after multiple reds (possible reversal).
Key Terms & Definitions
- Bullish — A market condition where prices are rising.
- Bearish — A market condition where prices are falling.
- Candlestick body (real body) — Rectangle displaying range between opening and closing prices.
- Wick/Shadow/Tail — Line showing the highest and lowest prices in the period.
- Doji — A candlestick with little to no body; signals indecision in the market.
- Trend — The general direction (up/down/sideways) of price movement.
- Momentum — The strength or speed of price movement.
Action Items / Next Steps
- Practice identifying candlestick patterns and trends on real charts.
- Review definitions and key points before analyzing market data.
- Explore more trading resources as needed.