Posted by forex at 4:56 AM
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1. Learn how to interpret candlestick charts. As technical analysis is largely a visual exercise, the look and shape of the candlestick is important to understand. Candlesticks are rectangles of different heights. The height is based on the price range for the day. A high stock price day will be illustrated by a long rectangle, also known as an extended body.
2. Understand the color changes. If the market has gone up for the day, the candlestick color will be white. Likewise, if the color is black or filled in, the market ended down.
3. Note the bottom and top of the candlestick. These lines mark the open and close of the asset price.
4. Note the sticks (wicks) which extend out of the body of the rectangle. The top stick goes up to the high price for the day and the bottom stick goes down to the low of the day.
5. Analyze trends. There are two common trading patterns for candlestick charting. They are Spinning tops and Doji's. Spinning tops are small bodies and can be white or filled. The pattern is considered neutral, and shows a tight trading range (small rectangle) for the day. Doji's are flat rectangles with long wicks in either direction. This is a sign that prices for the day were very close and/or the same.
6. Use the information the candlestick patterns tell you about the direction of the market to identify trends in future price movement. Knowing more information about the direction of the market than the average investor is the key to trading profitably.