The aim of every trader is minimize losses and maximize profit. This is true of forex traders, commodity brokers and stock market investors. Unfortunately, it is not always easy to tell how the market will behave at any point in time. In the stock market, prices rise and fall without warning sometimes. Forex traders and commodity brokers claim currency pairs go up and down at will and commodity prices do not always move in the direction you expect them to move. A perfect formula to predict market behavior is one thing every investor is looking for and this is why you should learn to read candlesticks accurately. Candlestick patterns are recognized by many market experts as an accurate form of technical analysis. The good thing about candlesticks is that they work with the stock market, the forex market and many commodity markets.
The aim of this article is to discuss the different signals from candlesticks, the meanings of signals and how you can use these signals to trade and make profit. This article will also point out cases in which candlesticks give wrong signals or conflicting signals. In cases where the signal cannot be relied on, it is safer to ignore the signal from the candlestick.
To use candlestick charts correctly, you should understand expressions like a “bulls market”, a “bears market” and a “stagnant market”. In the stock market, when prices are rising, this is called a bulls market. On the other hand, when prices are falling, this is called a bears market. A stagnant market is a situation in which the market is neither moving up nor down. This is a dangerous situation for the investor because at such times, the market is unpredictable and may suddenly go up or down without warning.
Now, let us look at some messages from candlesticks and what they mean to the investor. When the candles show a long white body, it means that the market is bullish. At this point, prices are rising and it may be a perfect time to buy blue chip stocks because the upward trend will be sustained for a while. When the candles show a long black body, this means that the market is bearish. Prices are falling so the investor should avoid buying high price stocks but this may be the right time to buy penny stocks. If the candlesticks display a small body, this indicates that the bears and the bulls are battling for supremacy. In this case, the market trend may be losing its previous momentum so the best thing is to wait and see what happens next.
Market experts can also use the length of shadows and the position of candle stick shadows to carry out technical analysis and predict the market. For instance, a long and low shadow means that the market rejected low prices while a tall upper shadow implies that the market discarded higher prices. This is vital information to the investor because it can help him or her determine entry position.
Finally, candlesticks can be used in conjunction with other charting techniques for best results. The information you get from candlesticks are usually correct and this is why you should learn to read candlesticks accurately.