If you’re new to trading, learning technical analysis, there are some things you should know before you start. One of the best ways to earn money on your trading account is to use price action. By analyzing this phenomenon of market behavior on a chart, you can predict its future movements and adjust your strategy accordingly. If you want to learn more about how it works or find out some other ways to take advantage of candle price action for stock trading, keep on reading!
A candlestick is a charting technique that shows how a security’s price has closed over a certain period of time. It’s comprised of the stock’s open, high, low, and closing price during that time period. When you’re looking at the market, you should look out for different candle types, including doji candles, bearish and bullish engulfing lines or candles, hammer candles, bull pennant candles, and more.
Doji candle
When you’re analyzing candle charts for stock trading purposes, one type of candle sticks to focus on is the doji candle. This type of candlestick is characterized by its short body and long upper and lower shadows. You’ll see this type of candle appear in the bottom half of the candlestick chart.
The doji candle is a bearish indicator that appears during a downtrend. The very name of this kind of candle is actually derived from “Jikido” which means emptiness or low price. A doji is indicative of an oversold position for a stock, so you can use it to be on top of any future buy or sell signals. It is important to note that not every bearish candlestick has the same characteristics. A large doji can also appear during a downtrend, but only with a small body and long shadows.
Why use candlesticks?
The main purpose of knowing how to use the price action of a candle is to help you make better trading decisions. A doji candle in itself may not be the best indicator, but it will lead to other signals that let you know what’s happening with a stock. Prices movement indicators are important to look at since they have direct link to a company’s fundamentals. They can tell you when interest rates are changing, economic indicators are changing, or a company is reporting earnings.
Are Candlesticks even worth looking at?
Of course, many investors have argued that candlesticks are being overused. They are yet another fad that are commonly used by forex traders today. The truth is that they are just another powerful tool in your trading arsenal. It’s true that this has become a common framework, but it’s just too useful to ignore. Since each investor has their own strategy or way of doing things, there isn’t any one right answer to how to use candlesticks for stocks.
When you’re using candles for stock trading purposes, you need to remember the following things:
Most people take their signals at face value alone, but there are other factors to take into account. It is not always possible to predict the future based on a candlestick signal alone. The sensitivity of a particular stock’s price action is a large factor in determining a buy or sell signal.
You should keep an eye on these signals as the stock progresses during the day. This means you continuously analyze the data that you have at any given time, and then make your trading decisions accordingly. Never rely on a signal from a certain candle from the previous day’s trading.
There should never be a time to trade on emotion alone. Because it can cloud your judgment and cause you to make mistakes in your approach, you need to have a strategy in place before making a trade, and otherwise you may end up being in trouble.
When it comes to technical indicators, you should always keep an open mind about how they work and what they do for your trading. Candlesticks can be a useful tool in your arsenal when you’re trying to trade stocks, so remember these things and give them a try.
How to use “Live Price action” of a candle to get advantage?
- You can use candlesticks to take profits based on the type of candle. For example, a long pending candlestick indicates that buyers will step up to the plate soon. So it’s a good time to take profits or place a market order.
- If you see a long white candle in an uptrend, this could indicate that the stock is going higher, so if you have been waiting for price action indications of a bullish engulfing pattern that might indicate that it’s time to place a buy order or sell short.
- If you’re going back and forth on whether you should place a buy or sell order, a doji could be the ideal candle for you. The doji is a sign that the stock is uncertain and this could indicate that it’s time to wait a little longer before placing a trade.
- A long black candlestick indicates that sellers are likely to step in and prices are likely to continue dropping, so if you have been waiting for price action indications of a bearish engulfing pattern that might indicate that it’s time to place a sell order or buy short.
- Bull Pennant candle is another type of candlestick patterns worth keeping an eye out for. They are similar to the Hammer candle pattern. The bullish engulfing candle shows a long upper shadow and a short lower shadow, which indicates the bears will be in control.
- The bullish engulfing Candlestick pattern is another type of candlestick that appears during an uptrend, but it’s different from the bullish engulfing pattern. This type of bullish engulfing candle shows a long upper shadow and short lower shadow, so it’s another sign that indicates that bulls are taking over control of the stock’s price action and it might be time to place a buy order or sell short for profit.
Bottom Line
It is certainly worth your time to learn the basics of candlestick trading. If you want to improve on your stock trading, you should have a solid understanding of how candlesticks work. They are popular because they are simple and yet effective at telling you what is happening behind the price action of any stock or forex pair. You must remember that these indicators are only merely tools that can indicate future price movements, but no indicator can guarantee what will happen. The best thing about candlestick charts is that, after your habit formation, it becomes second nature for them to become an integral part of your trading strategy.
