How To Use Candle Volume On Stock Charts

How To Use Candle Volume On Stock Charts

Table of Contents

For some reason, the buyers thwarted a potential shooting star and lifted the candle to close at the upper range of the candle to maintain the bullish sentiment, often times artificially. However, the truth hits when the next candle closes under the hanging man as selling accelerates. A hammer candlestick forms at the end of a downtrend and indicates a near-term price bottom. The hammer candle has a lower shadow that makes a new low in the downtrend sequence and then closes back up near or above the open.

Tall lines indicate that the price has been very volatile. Short lines imply that the price was relatively stable moving in one direction during that time frame.

The white day opens sharply lower, under the low of the prior black day. Then, prices close above the 50% point of the prior day’s black real body. Bearish — when a black, real body totally covers, “engulfs” the prior day’s real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed. Engulfing Patterns — Bullish — when a white, real body totally covers, “engulfs” the prior day’s real body. The best way to get comfortable with using candlesticks in your trading is to open a demo account and start practicing applying your knowledge.


While these principals are the foundation of technical analysis, other approaches, including fundamental analysis, may assert very different views. The White Candlestick — when the close is higher than the open. Exinity Limited is a member of Financial Commission, an international organization engaged in a resolution of disputes within the financial services industry in the Forex market. Candlesticks do not reflect the sequence of events between the open and close, and cannot tell us if the high or the low came first.

Candlesticks consist of the body and an upper and a lower shadow . The wick illustrates the highest and lowest traded prices of a stock, and the body represents the opening and closing trades. If the stock went up, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock went down, the body is black, with the opening price at the top and the closing price at the bottom.

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The second candle opens below the previous close but closes above the previous body’s open. The body of the second candle will completely ‘engulf’ the body of the first. Similar to the previous two patterns, engulfing patterns are more powerful and distinct than the pierce and cover.

How To Use Candle Volume On Stock Charts

Traders use candlesticks to make decisions about the markets, based on patterns that emerge. Before we get into the different types of candlestick chart analysis, we must first cover how to read them. The reading is quite simple, First, the trader creates a chart that looks at a certain time frame for the price movement of a security. Once they have that timeframe, the chart will be populated with candlesticks, and each candlestick will represent something different. The bottom of the body of the chart will indicate the open price during the selected time frame and this will turn red or green depending on the price action after open. The candle at the top of the candlestick body will represent the highest price the security reached in the life of the candlestick chart.

Interpreting A Volume Candlestick Chart

However, the opening of the large bearish candlestick can sometimes be used as a new resistance level. The chart above of the Utility SPDR illustrates how the opening of the long bearish candlestick acted as resistance for future prices. As a result, many professional traders have moved to using Candlestick charts over bar charts because they recognize the simple and effective visual appeal of candlesticks. Bar and candlestick charts are separated into different timeframes. Each bar or candlesticks represent the high, low open and close price for a specific period of time.

The third candle’s entire body will be above the second candle. This final candle needs to close deep into or even above the first candle’s body.

  • If you see a single curvy line across your chart, neither candlesticks nor bars are selected, so you will need to select candlesticks to see them displayed.
  • As such, while the bar chart makes it look attractive to buy, the candlestick chart proves there is indeed a reason for caution about going long.
  • The Gravestone Doji has a long upper shadow, the open, low, and close are at or very near the session’s low.
  • So before you start trading with Candlestick patterns, it is important to understand why and how these patterns work.
  • If you are not currently setting up your binary options charts to display candlesticks, you are missing out on a chance to make your trading a lot easier.
  • When I first started to trade, I kept hearing the term candlestick charts.

Some forex traders might focus on taking advantage of candle formations, while others attempt to spot price patterns. Bar charts and line charts are two other popular indicators for price analysis in forex trading, but candlestick charts have become more popular over time. Candlestick charts offer an enjoyable visual perception of price, which is a distinct advantage over bar charts. Bar charts are not as visual as candle charts, and the candle formations or price patterns are not as easy to distinguish as they are in candlestick charts. When I first started to trade, I kept hearing the term candlestick charts. However, like many beginners, I had no idea what a candlestick was.

What Is The Difference Between Long And Short Shadows?

This can improve the consistency of your market entries and your overall performance as a trader. As you learn to identify and read simple and more complex candlestick patterns, you can begin to read charts to see how you can trade using these patterns.

Candlestick patterns are useful for spotting areas of support and resistance. They are also valuable for confirming your predictions about market movements. However, it is worth mentioning that there is a lot that candlesticks cannot tell you. For instance, you cannot use them to learn why the open and close are similar or different. Candlesticks started being used to visually represent that emotion, as well as the size of price movements, with different colours.

For example, by using oscillating technical indicators, a trader will first wait for a signal that the market has moved into an overbought or oversold condition. At that point, they would look for a reversal signal of the prevailing trend. Many times, this reversal signal will come in the form of a candlestick formation. If you are chart reading and find a bullish candlestick, you may consider placing a buy order. On the other hand, if you find a bearish candlestick, you may choose to place a sell order.

What is the best MACD setting for day trading?

When we apply 5,13,1 instead of the standard 12,26,9 settings, we can achieve a visual representation of the MACD patterns. These patterns could be applied to various trading strategies and systems, as an additional filter for taking trade entries. It is argued that the best MACD setting for a MACD pattern is 5,13,1.

It’s said that the first charts of this type were created by a Japanese trader Munehisa Homma in the 18th century. Steve Nison described them in his book, introducing the idea to the Western investors. Nison also said that his research showed that modern-like candles originated a bit later, in the late 1800s. Bearish candlestick – These are red candles and it shows that the price has decreased over the selected time period.

What separates an abandoned baby from either of the stars is that the candle’s shadows won’t overlap at all. The abandoned baby is truly abandoned — no contact with the other two candles at all. In this example, the price eventually broke down, but not until after several more candles and a new high.

How To Use Candle Volume On Stock Charts

They are widely used because they show so much information in a very simple format, and it’s easy for traders to spot patterns that can help them make decisions on the markets. The rectangular area between the opening and the close of a session of trading is called the real body. The thin lines that look like candle wicks above and below the real body are called shadows. Doji candlesticks form when a stock’s open and close are almost equal. The length of the upper and lower shadows can vary, and the resulting candlestick looks like a cross, an inverted cross, or a plus sign.

Evening Doji Star — a doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated. These candlestick formations consist of a small real body that gaps away from the real body preceding it. The real body of the star should not overlap the prior real body. The color of the star is not too important, and they can occur at either tops or bottoms. The body of the candlestick is called the real body, and represents the range between the open and closing prices.

Candlestick Patterns And Trader Education

The opening marubozu opens and continues higher throughout the day, never going below the opening price. Unfortunately for bulls, prices rise to a point where bears come in and are strong enough to push prices lower to the close. The first is a very bullish candlestick called the bullish marubozu.

How To Use Candle Volume On Stock Charts

If you don’t have time to read the entire article, you can always bookmark it for later. Three inside up and three inside down are three-candle reversal patterns. They show current momentum is slowing and the price direction is changing. As Japanese rice traders discovered centuries ago, investors’ emotions surrounding the trading of an asset have a major impact on that asset’s movement. Candlesticks help traders to gauge the emotions surrounding a stock, or other assets, helping them make better predictions about where that stock might be headed. This is followed by three small real bodies that make upward progress but stay within the range of the first big down day. The pattern completes when the fifth day makes another large downward move.

It can be daunting and confusing to assimilate everything. This trading tutorial will show you how to read candlestick charts for beginners. Bullish candlestick patterns can be reversals after a bearish trend or continuations after an already established bull rally. You just have to learn how to read them … then put them to use in your trading. A candlestick shows you the opening, closing, high, and low prices for the specific time frame. Morning Doji Star — a doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.

Mary Davis
My name is Mary Davis. I am successful broker. I want to share my experience with you through tutorials and webinars. For any questions of interest, please contact us by e-mail: [email protected]. +1 973-709-5130


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