Day Trading for Beginners 3 in 1 by Unknown

Author:Unknown
Language: eng
Format: epub
Published: 2022-01-19T10:28:56+00:00

Chapter 7: Introduction to Candlesticks

Whether you are just a beginner or you have been trading for quite some time, I am sure that you have come across photos where a person is looking at charts on the screen. These pictures are probably found in every online article about trading. And I guess you have wondered what these charts really mean? Well, don’t worry because we are going to discuss exactly that in this chapter. Charts are of different forms and not one and candlesticks are the most common ones out of them all. They consist of greed and red-colored rectangles and they are also known by the name of Japanese candlesticks. I am going to walk you through the details of these candlesticks in this chapter.

The main purpose of candlesticks is that they are used for showing the major price indicators like the High, the Low, Open price, and the Closing price. The techniques followed in these patterns were initially developed in Japan and hence the name – Japanese candlesticks. The distinctive patterns formed by these can actually tell you whether a trade is going to be profitable or not, but yes, for a correct interpretation, you also have to learn to study these patterns in the right way. There are different names given to these candlestick patterns like the Shooting Star, the Hammer, Dojis, and so on.

Now, let us move on to a brief history of candlesticks. Their origin dates way back to the 18 th century in Japan. Munehisa Homma was actually one of the first persons to predict future prices with the help of historical price action. Initially, Homma was trading in Sakata at the local rice exchange and this was in the year 1750. Later on, he started trading in the Dojima Rice Exchange.

Price Action And Mass Psychology

Before we move into the details, let me give you an idea of the different parts of candlesticks.

The body of the candlestick is comparatively the thicker area and it shows the range between the closing price and the opening price. You will notice that both above and below these candlesticks, there are thin lines, and they are known as wicks or shadows. These points are what determines the highest and lowest price points on any particular trading day.

If you want to find out where you place your take profit orders, it is these wicks that will help you determine that. This is because you get to know the minimum and maximum prices for any trading session from these wicks. Let us say you are in a long position; then you can choose the top of the wick for placing your take profit order. You can also figure out the support and resistance levels from the same closing price and opening price.

If you notice that the color of the body of a candlestick is white or green, then you will understand that the opening price is lower than the closing price. On the contrary, if the body is black or red, then the opening price is above the closing price.

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