Candlestick charts are a type of chart used in trading that displays the open, high, low, and close prices for an asset over a given period of time. They are named after their shape, which resembles a candlestick, with a thin line representing the range between the high and low prices (the “wick” or “shadow”), and a wider bar representing the range between the open and close prices (the “real body”).
Candlestick charts provide traders with a visual representation of price movements and patterns that can help them make informed trading decisions. By analyzing the patterns formed by the candlesticks, traders can gain insights into market sentiment, supply and demand dynamics, and other factors that can impact the price of an asset.
There are many different candlestick patterns that traders use to identify potential entry and exit points, as well as trend direction and momentum. For example, a bullish candlestick pattern, such as a hammer or engulfing pattern, can indicate a potential trend reversal or support level. Conversely, a bearish candlestick pattern, such as a shooting star or bearish engulfing pattern, can indicate a potential trend reversal or resistance level.
Candlestick patterns can be used in combination with other technical indicators and analysis techniques to make informed trading decisions. It’s important for traders to use proper risk management techniques and to have a solid trading plan in place to protect their capital.