Posted by forex at 2:44 AM
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1. Use the vertical shape of the candlesticks to gauge the bullishness or bearishness of the stock. Traders have developed various names for differently shaped candlesticks. For example, a candlestick with a large body and short shadows is called a long candle while a candlestick with an extremely thin body is called a doji. When a doji follows a long candle, it is considered to be a possible reversal signal.
2. Use the width of the candlesticks to gauge trading volume. The wider the candlestick, the greater the trading volume. Generally, a price move based on high trading volume is considered more significant than a price move based on low volume. Keep this rule of thumb in mind to help separate legitimate price moves from aberrations.
3. Combine candlestick formations and volume information to make trading decisions. There are many different candlestick formations. Learn about these formations and then incorporate the volume information as an additional screening aide when considering trades. Look to enter the market early on a high volume move, but also look for decreasing volume at the end of move to signal a reversal.