candlesticks

Introduction As a newcomer to trading or investing, reading charts can be a daunting task. Some rely on their gut feeling and make their investments based on their intuition. While this strategy might temporarily work in a bullish market environment, it most likely won’t in the long run.  Essentially, trading and investing are games of probabilities and risk management. So, being able to read candlestick charts is vital to almost any investment style. This article will explain what candlestick charts are and how to read them.   Learn more on Binance.com   What is a candlestick chart? A candlestick chart is a type of financial chart that graphically represents the price moves of an asset for a given timeframe. As the name suggests, it’s made up of candlesticks, each representing the same amount of time. The candlesticks can represent virtually any period, from seconds to years.  Candlestick charts date back to about the 17th century. Their creation as a charting tool is often credited to a Japanese rice trader called Homma. His ideas were likely what provided the foundation for what is now used as the modern candlestick chart. Homma’s findings were refined by many, most notably by Charles Dow, one of the fathers of modern technical analysis. While candlestick charts could be used to analyze any other types of data, they are mostly employed to facilitate the analysis of financial markets. Used correctly, they’re tools that can help traders gauge the probability of outcomes in the price movement. They can be useful as they enable traders and investors to form their own ideas based on their analysis of the market.   How do candlestick charts work? The following price points are needed to create each candlestick: Open — The first recorded trading price of the asset within that particular timeframe. High — The highest recorded trading price of the asset within that particular timeframe. Low — The lowest recorded trading price of the asset within that particular timeframe. Close — The last recorded trading price of the asset within that particular timeframe.       Collectively, this data set is often referred to as the OHLC values. The relationship between the open, high, low, and close determines how the candlestick looks. The distance between the open and close is referred to as the body, while the distance between the body and the high/low is referred to as the wick or shadow. The distance between the high and low of the candle is called the range of the candlestick.    How to read candlestick charts Many traders consider candlestick charts easier to read than the more conventional bar and line charts, even though they provide similar information. Candlestick charts can be read at a glance, offering a simple representation of price action.  In practice, a candlestick shows the battle between bulls and bears for a certain period. Generally, the longer the body is, the more intense the buying or selling pressure was during the measured timeframe. If the wicks on the candle are short, it means that the high (or the low) of the measured timeframe was near the closing price. The color and settings may vary with different charting tools, but generally, if the body is green, it means that the asset closed higher than it opened. Red means that the price moved down during the measured timeframe, so the close was lower than the open.  Some chartists prefer to use black-and-white representations. So instead of using green and red, the charts represent up movements with hollow candles and down moves with black candles.   What candlestick charts don’t tell you While candlesticks are useful in giving you a general idea of price action, they may not provide all you need for a comprehensive analysis. For instance, candlesticks don’t show in detail what happened in the interval between the open and close, only the distance between the two points (along with the highest and lowest prices). For example, while the wicks of a candlestick do tell us the high and low of the period, they can't tell us which one happened first. Still, in most charting tools, the timeframe can be changed, allowing traders to zoom into lower timeframes for more details.   Candlestick charts can also contain a lot of market noise, especially when charting lower timeframes. The candles can change very quickly, which can make them challenging to interpret.   Heikin-Ashi candlesticks So far, we have discussed what is sometimes referred to as the Japanese candlestick chart. But, there are other ways to calculate candlesticks. The Heikin-Ashi Technique is one of them. Heikin-Ashi stands for “average bar” in Japanese. Such candlestick charts rely on a modified formula that uses average price data. The main goal is to smooth out price action and filter out market noise. As such, Heikin-Ashi candles can make it easier to spot market trends, price patterns, and possible reversals. Traders often use Heikin-Ashi candles in combination with Japanese candlesticks to avoid false signals and increase the chances of spotting market trends. Green Heikin-Ashi candles with no lower wicks generally indicate a strong uptrend, while red candles with no upper wicks may point to a strong downtrend. While Heikin-Ashi candlesticks can be a powerful tool, like any other technical analysis technique, they do have their limitations. Since these candles use averaged price data, patterns may take longer to develop. Also, they don’t show price gaps and may obscure other price data.   Closing thoughts Candlestick charts are one of the most fundamental tools for any trader or investor. They not only provide a visual representation of the price action for a given asset, but also offer the flexibility to analyze data in different timeframes. An extensive study of candlestick charts and patterns, combined with an analytical mindset and enough practice may eventually provide traders with an edge over the market. Still, most traders and investors agree that it’s also important to consider other methods, such as fundamental analysis.

From time to time, we may want to consider volatility as an ally. After all, why would highly volatile markets necessarily mean more losing trades?The first target was hit – BOOM! Today – just before the weekend – it is time to bank some profits from my recent trade projections (provided on March 2). Since then, the trade plan has provided our dear subscribers with multiple bounces to trade the NYMEX Natural Gas Futures (April contract) in various ways, always depending on each one’s personal risk profile.The first possibility is the swing trading with trailing stop method explained in my famous risk management article.Trade entry triggered on Tuesday, March 8 (firm rebound on yellow band), stop lifted once price extends beyond mid-point (median) price between first target and entry, thus ending at $4.607 (black dotted line), given the market closed at its daily high of $4.704 (purple dotted line) that same day and assuming you entered that long trade at $4.550 (top of the yellow band). That was a quick one that lasted only a couple hours for the day traders who closed their trades at the regular market close (two candles later, see below chart). For the swing traders, the win-stop was triggered the next day (Wednesday) on the following pull-back. Henry Hub Natural Gas (NGJ22) Futures (April contract, hourly chart)The second option is to scale the rebounds with fixed targets (active or experienced traders).This method consists of “riding the tails” (or the shadows). To get a better grasp of this concept, let’s zoom out on a 4H-chart so you can see the multiple rebounds of the price characterized by the shadows (or tails) of candlesticks, where a crowd of bulls are placing buy orders around that yellow support zone, therefore squeezing bears by pushing prices towards the upside (like some sort of rope pulling game). This trading style often requires stops to be tighter with some profit-to-risk ratio greater than 1.5 (with usually fixed targets). Henry Hub Natural Gas (NGJ22) Futures (April contract, 4H chart)Third possibility: position trading. This is probably the most passive trading style, as it would suit everyone’s busy timetable (and be the most rewarding). This is usually the one we privilege at Sunshine Profits since it allows us to provide trade projections some time in advance for our patient sniper traders to lock in their trading targets and take sufficient time to assess the associated risk with each projection as part of a full trade plan (or flying map).Let’s zoom out again to spot our first target getting hit today on a daily chart so we can have an overall view of the next target to be locked in while lifting our stop to breakeven (entry), previous swing low ($4.450) or using an Average True Range (ATR) ratio as some of you may like to use:Henry Hub Natural Gas (NGJ22) Futures (April contract, daily chart)That’s all folks for today. Have a great weekend!Like what you’ve read? Subscribe for our daily newsletter today, and you'll get 7 days of FREE access to our premium daily Oil Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!Thank you.Sebastien BischeriOil & Gas Trading Strategist* * * * *The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.