Mastering Candlestick Charts - A Guide to Reading Market Trends for Intraday Trading Success

Intraday trading simply refers to buying and selling stocks on the same day. Traders with a good understanding of the market patterns often take part in intraday trading. When done right, it can bring huge profits. However, it requires a good understanding of the market to specify their trade direction towards buy or sell. Intraday traders buy stocks at a low price and sell at a higher rate the same day. At the end of the trading day, no stock positions are left open.

In this article, we will learn about reading candlestick charts that can assist you in making the right decisions at the right time.

• Candlestick charts represent the price fluctuations of stocks in a particular time frame. The candlesticks are in red and green colours.
• The upper shadow of a candlestick indicates the highest price, and the lower shadow represents the lowest price of a stock.
• Comparing and analysing candlesticks can help traders buy and sell stocks at the most profitable time.
• Consecutive red candles of a stock represent the falling price of the stock.

A trader’s screen usually contains charts and images that help them make the right decision. A candlestick chart in trading refers to a chart with candle-like structures (called candlesticks) that represent the price fluctuations of a particular security, derivative, or currency in a particular time frame. It contains the highs and lows of a trade.

You can usually see candles in two different colours, red and green. The middle wide part is the candle body, while the thin line above and below the body are the highs and lows, respectively (called shadows). Let us now understand the four different data points in a candle.

• Open point
  It represents the top portion of the body. This is the point when the trade opened at a specific time.
• Close point
  Close point is the lower point of the candle's body. This is the point when a trade is closed.
• High point
  This is the topmost point of the highs of a candlestick. It is the point where the thin line stretching above the candle's body ends. It is the highest traded price. This is also known as the upper shadow.
• Low point
  The thin line stretches below the candlestick body. The endpoint of this part is termed the low point. It is the lowest traded price, which is also known as the lower shadow.

Now that you have an idea of what a candlestick looks like and its various parts, you must also understand how to read candlesticks in trading. As discussed above, the upper and lower part of the candle body represents the opening and closing price, respectively. Also, the colour of the stick indicates a price fall or increase. For instance, if you check a one-month candlestick chart of a stock, the colours of the candlesticks can be conclusive. If there are more consecutive reds, the stock’s price has been on a decline.

Once you have read the opening and closing prices of a candlestick, you can proceed with the highs and lows of a stock. Here is how you can read and analyse the same:

• The highest point of the upper shadow is the highest price of a stock. So, if the upper shadow on a red candlestick is short, it represents that the stock was opened almost at the highest price.
• Coming to the green candle, if the upper shadow is short on a green candle, it indicates that the stock was closed almost around the highest price.

Understanding one candle is important but not sufficient. To know how the market is performing, you need to compare multiple candlesticks, especially the ones before and after a candlestick. Thus, it can be divided into two patterns: bullish and bearish. The bullish market represents a market with a rising price while the bearish market is the one that indicates a fall in the price.

It is crucial that you learn to read candlesticks if you plan to partake in intraday trading. Understanding the connections between highs and lows and opening and closing prices is important for a trader. It gives them a better idea about how a stock performs. The details provided in this blog can be helpful for beginners.