How A Candlestick Chart Works In Trading To Gain Profit

It shows the open, high, low, and closing prices in a format similar to a modern-day bar chart but in a manner that extenuates the relationship between the opening and closing prices. They don't involve any calculations. Each candlestick in the candlestick chart represents one period (e.g., day) of data.

Analysis

The interpretation of candlestick charts is based primarily on patterns. The patterns are classified as Bullish, Bearish, trend reversal and neutral patterns

A candle stick chart is a good presentation of a stock’s momentum. On a candlestick chart, one can easily see the secession of up days, down days and sudden changes in the stock pattern. The following figure is an example of a typical buy pattern.

The above figure shows that after a long decline the stock has moved up by a significant magnitude. This sends a short-term buy signal. It shows a first sunny day pattern. It is at a good entry level and the optimal loss level is 55.3.

In this case the strategy is to buy the stock and hold until it recovers the range lost by the recent secession of down days, or to cut losses if it drops back to the prior day's low.

The above figure indicates a short-term Trend-Reversal pattern. After a long, long rise, the stock suddenly drops; its close is much lower than its open. This indicates one should sell the stock without delay.

In this example of the, "Sudden Cloudy Day" pattern, the trading strategy is to short the stock and hold it until it retraces the recent secession of up days or to cut losses if it breaks the previous day's high. The optimal stop loss cover level is 91.7.