- 1). Open any stock charting program. Many brokers provide clients with trading software that includes comprehensive stock charting features. If not, many free online resources are available for candlestick charting, including BigCharts and StockCharts.
- 2). Chart the stock of your choice. Simply type the ticker symbol into the charting program and press "Enter." A chart will display.
- 3). Change the charting style to "candlestick." On some systems, such as StockCharts, this is the default setting. On other platforms, the "bar" chart style may be the default. With BigCharts, you can change to a candlestick style by choosing "candlestick" under the "Price Display" menu on the left of the screen. This is a similar choice in other trading platforms.
- 4). Identify the components of the candlesticks you see on the chart. A green, white, or hollow candlestick (with no shading) indicate that the top of the candle's body was the closing price, thus showing an overall rise in price over the candle. A red candlestick means the top of the body was the opening price, thus the closing price was lower. The high and low points are thin lines that extend above and below the body as "wicks." In some cases the wicks are not present if the high or low coincided with the opening or closing price.
- 5). Identify any candle where the body is longer than the entire previous candle from wick to wick, and the longer candle is a different color. These are "engulfment" patterns and are among the easiest candlestick patterns to see. They are also among the most significant patterns. If the longer candle is green, this is a "bullish engulfment." This indicates that the prices are moving overwhelming in favor of a price rally, enough to overcome losses from the previous day or candle. Engulfments are typically seen at the end of a trend or the start of a new trend.
- 6). Locate a candle where the body resides entirely in the upper or lower half of the candle with a long wick protruding from it. This is a "hammer" candle or a "pin bar," so named because the candle looks a bit like a hammer or shows a long "pin" (the wick) sticking out from it. These indicate that prices traded well away from the opening price, but they eventually returned near the opening price before the period ended. This pattern often indicates price moves in the direction opposite of the wick, since trading failed to sustain price action in that area.
- 7). Study the candlestick chart for these two patterns---engulfments and hammers---and observe the kind of price action that occurred over the many candles that followed. You will eventually come to recognize the implications of these patterns and make meaningful predictions as they occur in real-time.
- Advertisement -
- Advertisement -