How to Read Candlestick Patterns?

Candlestick patterns are most popular among technical traders than line charts or bar charts. The reason is that candlestick charts can deliver more data points to technical analysts than other charting techniques.

The green candle represents the strength in the market (Open < Close), and the red candle represents the weakness (Open>Close) in the market.

In general, a candlestick, despite being red or green, has below data points:

• Open Price

• Close Price

• High Price

• Low Price

• Direction

• Range

Open Price

It is the price at which the stock opens in the market when the trading session begins. If the price moves above the open price, the candle will turn green, and if the price moves below the open price, the candle's color will turn red.

High Price

The upper shadow indicates the highest trading price of that trading session.

For a red candle, no higher shadow means open=high. For a green candle, no higher shadow means close=high.

Low Price

The lower shadow indicates the lowest price of that trading session.

For a red candle, no lower shadow means close=low. For a green candle, no lower shadow means open=low.

Close Price

Closing price refers to the last price at which a stock trades during a regular trading session.

The candle turns green when the closing price is higher than the open price, indicating a bullish market. The candle turns red when the opening price is higher than the closing price, indicating a bearish market.

Direction

The direction of the price is evident from the color of the candle. If the market favors the bears,i.e., when the closing price is below the opening price, the candle is red, and if it favors the bulls, i.e., the closing price is above the opening price, then the candle turns green.

Range

The range is the difference between the highest and the lowest price in the duration in which the candle was formed. To calculate the range, subtract the lowest price of the candlestick from the highest (High price-Low price).