Buying and selling equities on the same day, with no open positions remaining at the end of the market day, is known as intraday trading or day trading. Their primary activity is purchasing stocks at a discount and reselling them at a profit. In rare situations, they also short-sell shares by buying them at a premium and then reselling them at a loss the same day.
You must thoroughly understand and be aware of market trends to engage in such a dangerous activity. The price of a share on the stock market is influenced by several factors, including supply and demand. The trader must be able to make the appropriate decision at the right time to profit in this situation.
You are trading incorrectly if you do not analyze price charts before you place a trade. And for the same reason, employing tools or performing technical analysis before investing is essential. Technical analysis’s fundamental components include the stock’s price and volume, both of which are crucial inputs. If you continue to sell without technical analysis, there is a significant risk that you will lose everything you have invested.
Tools like candlestick chart patterns have shown to be quite helpful for traders. This post will go into more detail about how to use this tool as a novice in this sector and how to read them.
What is a candlestick chart?
A candlestick chart is a type of financial graph that often displays changes in the price of commodities, equities, or derivatives. It resembles a candlestick with a vertical rectangle and wicks at the top and bottom—the candlestick’s top and bottom display the open and closed prices. The price is displayed at the top and bottom of the candle, respectively.
Since a Japanese guy by the name of Homma created them in the 1700s, candlestick charts have been in use. He understood that there was a connection between the price of rice, supply and demand, and the emotions of the rice traders. Each candlestick represented the open, the high, the close, and the low on the chart he created, which also included the four other dimensions of a trading period. After the West caught up with him a century later, the rest is history.
Types of candlestick patterns
The most typical candlesticks found on candlestick charts are red and green. These candles serve as a representation of the price spectrum throughout time. For instance, each candlestick on a 5-minute chart represents 5 minutes, and so forth. Let’s now examine in greater detail what each candle means.
Red candles: The red candles signify a closing price that was less than the opening price after the time.
Green candle: The green candles depict the closing price that is greater than the opening price at the end of the time.
How to read a candlestick chart?
Trading without taking a peek at price charts is equivalent to winging it. The two most crucial inputs for technical analysis are price and volume. All forms of technical analysis are built upon them. Price charts make it easier to visually analyze price and volume data.
The most common type of price chart traders utilize is the candlestick chart. The price graph is shown as a succession of candles on a candlestick chart, hence the name of the type of chart.
A glance at a candlestick chart reveals valuable information, including trends, bullishness or bearishness, and volume.
Red and green candle on the chart contains data on the opening, closing, and trade price range for that particular time.
Candle shows the price range over a specific time. Each candlestick in a 5-min candlestick chart denotes a 5-minute interval; in a 10-min candlestick chart, a 10-minute break; and so on.
Details of candlesticks
Green candles indicate that the opening price was more significant than the closing price after the time.
Red candles indicate that the closing price was less than the opening price after the period.
Let’s imagine that at 9.30 am, when the stock price is Rs. 230, you open a 10-min candlestick chart of the stock. The candle will be green if the price rises and reaches Rs. 233 at 9.40 am.
The candle’s body, highlighted in green or red, shows the opening and closing price. In a red candle, the down end of the body corresponds to the closing price and the upper back to the opening price.
Like a red candle, a green candle’s bottom end represents the initial price, and its upper end represents the final price.
The candle’s wick is represented by the top and lower shadows. The candle’s wick represents the price range of the stock traded throughout that period.
Details of candlesticks
For instance, if the price fluctuated between Rs. 225 and Rs. 234 during ten minutes, the candle’s wick would have been between Rs. 225 and Rs. 234. And the formed body will cost between Rs 230 and 233.
Which intraday candlestick pattern is the most reliable?
The shooting star candlestick pattern is excellent and dependable for intraday trading.
How should a novice day trader read candlestick charts?
As a novice, you should read the post above because it will provide insight into how to read candlestick charts for day trading. Before you start day trading, there are several patterns that you should be familiar with. Additionally, each of these candlesticks has a unique meaning.
There are a lot of different candlestick patterns that can be used to find opportunities in the market. Some show how buying and selling pressures are balanced, while others offer market hesitation or continuation patterns. Over time, each candlestick forms pattern traders can use to find essential support and resistance levels.