Candlestick charts are the most used for analyzing price trends. Since we have already shown examples in the blog, and there will certainly be many others, it is good to make a brief parenthesis on what they are and how they are read.
The basic element is the candle:
In the candle we can identify the following four components:
- Upper shadow (1): The upper part of this line indicates the maximum level that the price has reached;
- Real Body (2): it is the central rectangle, where the upper and lower limits are the closing and opening price;
- Lower shadow (3): the lower part of this line indicates the minimum level that the price has reached;
- color: if the opening price is lower than the closing price, then it means that the price has dropped and the color is red. Otherwise it is green (there are also graphs that use black and white colors).
The data that are used to draw a candle (opening, closing, maximum and minimum) are referred to a specific timeframe, or the time frame that selects the user (the main ones are 5min, 15min, 1h, 2h, 3h, 4h , 1G, 1sett, 1month).
So each candle is drawn starting from the selection of a time frame. It is therefore very useful to select the correct time frame:
- A time frame that is too short (like those of the minutes) will give a vision of the immediate, but will have little use in the long term;
- A longer period of time (from hours to days) will instead be more useful for identifying market trends;
Wanting to simplify the interpretation is as follows:
- A fairly pronounced real body, with small shadows, indicate a good market decision, as the price has always followed a certain direction (always up or down);
- Very long shadows with a small real body, instead indicate extreme indecision.
However, there are a whole series of patterns that can be applied both on the single candle and on groups of more candles. For these we refer to the next articles.