Reading & Understanding Candlesticks

Shakir Elahi
A free video tutorial from Shakir Elahi
Shakir Elahi
4.5 instructor rating • 18 courses • 65,341 students

Lecture description

How to read candlesticks?

Learn more from the full course

Trading Master 101 - Introduction To Technical Analysis

Trading the Stock Markets! Learn how to read the charts the EASY way Today!

02:40:10 of on-demand video • Updated

  • Understand & Recognize the types of candlesticks
  • Read basic candlestick charts
  • Find Support & Resistance levels
  • Understand basic market trends & create trend lines
  • Understand how to avoid making big mistakes by entering a trade at undesirable price levels
English [Auto] Welcome to the world of Japanese candlesticks. Trying to make sense of so many moving numbers is incredibly difficult for a beginner. It's also not a very clever move for most advanced traders. So let's try to analyze them one constantly changing number at a time that's going to make it a little easier but then we'll also use an example to do this. Let's say that the stock price of Apple is 50 dollars when the market opens. Then after the market is going to push the price upwards and downwards and all throughout the day the price is going to keep changing so a little while later start price increases by a dollar. It was originally trading at 50 but now after the increased stock price reaches 51. So it's trading at 51 at the moment a little point later in the day it decreases by a dollar. And so it's trading at fifty dollars a decreases again by a dollar. So stock price reaches forty nine decreases again by two dollars. And so it reaches the stock price is trading at forty seven decreases again by a dollar. And so it's trading at forty six. And then there is this increase a huge increase by six dollars. So the stock price jumps up from 46 all the way course to 52. We have a decrease of three dollars. So it goes back down to 49. We have an increase by five dollars so the stock price reaches 54. And then there is a decrease by one dollar the stock price reaches for 53. And this is where the market ends up closing. So the opening price is 50 and then there is this huge volatility goes up it goes down. But at the end of the day it closes at 53. Now I'm sure they're looking at the way that prices have gone up and down. It is pretty difficult to find any kind of pattern given the way that prices have been moving. Therefore is going to be even harder for anyone to predict what is going to happen next. Japanese traders came up with a way to represent these prices in the form of candlesticks and Candlestick charts Candlestick charts make it easier for us to analyze price movements and detect patterns. This makes it easier to predict future price movements. So let's jump right in and see how Candlesticks are made. The letter O stands for open and it refers to the opening price for any specific time period the letter H stands for High and refers to the highest possible price then any kind of commodity or stock reaches during that time period. The L stands for the lowest possible price. During that time period and the C stands for the closing price for a specific time period. Now I am going to refer to this as the O H LC in the future. Instead of saying open high low and close. This is critical to understanding how to make or read Candlestick charts because Candlesticks are made based. How will the open high low and close all candlesticks must have an open high low and close which is basically in the OR edge LCD. So let's jump back into our example and try to figure out the oil Chelsea values have to which we will be able to make a candlestick for this specific time period. For example for the stock price of Apple Computers is fifty dollars when the market opens. This directly means that all equals fifty dollars now price can go up we can go down since the market opened at fifty dollars. Always always going to be fixed had 50 dollars so after the market is open there are going to be a number of fluctuations in prices. So let's say the stock price reaches 51 and this is what we've done just a few minutes earlier. The opening price you'll notice is going to remain the same. We're going to say oh equals 50 and now the stock price reaches 51 which means that there has been an increase of 1. So the closing price is always going to be the last price that is being traded. The closing price is denoted by a C so C equals 51. And during this time period we only have two figures here. We have 50 and we have 51 so the highest possible price that this stock has gone up to during this time period is 51. Therefore H is 51 and a law is the same as the opening price of 50. So don't worry too much about this once we go through a number of example you'll see exactly how to change the switch healthy values. Let's take the next one stock price decreases by one dollar. So what happens here is that the current price right is 50 because it went down by a daughter. The closing price should now be 50. That's why is it being reflected there. Remember that the opening price is coming directly from there. It's not going to change. So all of these values are gonna remain the same for the opening price. Now the high for both of this time frame or this time period is has been fifty one. So h is going to be fifty one L is going to be 50. Let's take the next one. Price decreases by another daughter. So opening price is 50. The closing is now forty nine because it's gone down by another dollar. The high is going to remain the same. The highest possible price the highest possible number that we have is 51. It hasn't gone up to 52 right or it hasn't gone up to fifty four or five when it breaks through this level right through the high is going to change. Otherwise the is going to remain the same. But we do see that the l the lowest price is forty nine. This is because the closing price goes down from 50 to 49. So the lowest number that we have is forty nine. That's what the L stands for. Let's do another one stock price decreases by a further two dollars right. So the opening price is again 50 the high is going to remain the same at 51. The closing is at forty seven because it goes down by two. So forty nine minus two is forty seven and the lowest possible prices again changing and is becoming forty seven stock price decreases by a dollar opening price remains the same at fifty high remains the same at fifty one with the closing and the low both become 46 now price increases by six. So it increases by six. The opening prices are to remain the same at 50 the closing price just goes up by six. So forty six plus six is 52. The closing price is 52 here. The low is not going to change. It's going to remain the same because it hasn't gone down to 45. This is the lowest price during this time period. However since the closes now at 52 and the previous high that we had was 51 right. So we can't put the high as 51 here to high during this time period is 52. OK stock price decreases by three dollars. So the opening is 50 the high is 52 the low is 46 and the closing price goes down to forty nine increases by five dollars. So what happens here is there. From the forty nine we just go up five which gives us a closing price of fifty for this fifty four is higher than all the other numbers that we have here. So the high is going to change to fifty four and the law is going to remain at 46 and now it decreases by one dollar. So what happens here is that the closing price goes down to 53 the low the high and the opening price remain the same. So if you remember that in the previous example as well the closing price was 53. You can post a video and go back and just to confirm maybe you can even go through this example a couple of times so that you get the hang of how these numbers are changing and how the switch Elsie values of being obtained because these values are going to show us how to create the candle that we're going to use to predict how prices are going to move. So this is very important for you to understand before we go any further. What I want you to note is that this last voyage Elsie values that we have. Give us the opening price. The high the low and the closing price for a specific time period assuming that we were looking at the daily timeframe which means that the market opens in the morning at fifty dollars and it closes at fifty three dollars. These are the values that give us the entire summary of what has been happening during that time period. So we're going to use these already healthy values to proceed further and create a candlestick. Notice that the opening price is 50 dollars and the closing price is fifty three dollars. So we automatically know that the price has gone up. Let's say that the opening price is 50 a we can market right here. The closing price has to be slightly larger and will be placed about if the closing price is right about here. The difference between these two is called the body. This is the body of the candlestick and since price has gone up we're going to color it in green and then we can go ahead and place in the high and the low so the high is 54 and we can draw a line upwards from the body. And for the low we have to draw a line downwards towards the low. Notice that the high is just one dollar above the close. Therefore the light the length of the line above towards the high is shorter whereas the length of the line towards the low is longer. This particular candlestick hasn't been drawn to scale but on our charts it is drawn to scale these lines that you see are generally referred to as the week. Now there can be many different kinds of candlesticks and these are all based on the which LC values practice makes perfect. And I'm wondering whether you are willing to do what is required to succeed so I need you to practice making the following candlesticks with the ostrich LC values given here. There are five of these which as he values and therefore there will be five different candlesticks that you will be making. I want you to pose this video and solve this short assignment before proceeding any further when we proceed. I'm going to solve all five of these and if you've done them in advance you'll see where you made those mistakes and this will help you can reflect your mistakes and be better understanding candlesticks. Now while you're at it also please subscribe to my channel so that you can be updated every time I put up a new video. So let's proceed further now. We'll take the first set of questions he values the opening price is twenty five the high is thirty five The low is twenty and the closing is thirty. So just looking at these values we can see that the open was twenty five and the close was 30 which means that this is going to be a green candle because price has risen during this time period. So we make the body we start out with 25 and move upwards to 30. And now we can add the upper Wick at thirty five and the lower Wick at twenty. So this is what your candle should look like. Were you able to get this right. I hope that you did because this was pretty simple. If you have any problems leave a comment and I'll try to answer your question as soon as possible. Let's do another one. So here we have the oil Chelsea values at 110 which is the open 110 which is the high 80 as the low at 105 has the closing. So just looking at these values once again we look at the open and close and we know that this is a red candle because price has fallen during this time period. So we'll start out with one hundred and ten and then we'll move downwards which will give us the body of the candle. And now we can put in are high now the high is 110 and there is no upper Wick because the opening price was a hundred and ten as well and then prices didn't go up any further up it just started to fall. But we do have a lower Wick and we can draw this by a line moving downwards and that goes down to 80. So this is what the candle should look like. Let's do the remaining three. The Chelsea values are 15 20 15 and 18. It's a green candle. Price has risen. We'll start from the 15 and move it up to all the way to 18. And then we have the upper week at 20. But do we have a lower Wick. There is no lower risk. That's because the opening price was 15 and the law was also 15. The next one which LC values are 7 10 2 and 7. So is this gonna be a green candle or a red candle. Well price remain the same during this time period opened at 7:00 and it closed at 7:00. So we just want to draw a straight line because it started had the same price as it ended right. However we do have an upper Wick. It goes up to 10 and then it goes down to 2. So it looks something like a cross but it doesn't have a body this kind of heat candles take is called a dodgy candlestick are dodgy candlesticks do not have a body. Now let's attend the last one the Chelsea values of 40 40 20 and 20. So right off the start we know that this is a red candle because price has fallen. We'll start with 40 we move all the way down to 20. But are there any upper weeks or lower Wicks here. The high and the low are 40 and 20. So I guess we're missing some weeks here. Right. This is a proper candle right. You know we don't have any breaks. So some people ask that you know whether this is going to be an actual candlestick or not. Yes it is going to be. And this kind of a candle stake is called a ma booth or candlestick. We'll study more about these a little later on and in the next video I'm going to go over some frequently asked questions students has regarding candlesticks. It's a short video. If you go through it it's automatically going to answer some of your own questions.