Candlestick continuation patterns – An Easy to Understand Guide

Do you want to know more about candlestick charts and candlestick patterns? Watch our latest video to learn how to read Candlestick continuation patterns and get profitable trading results.

Candlestick continuation patterns – A simple explanation

While there are many different types of charting available for the average trader, candlestick charting is rapidly becoming the norm for most financial markets. It has long been a stable of the Forex community, but we are now starting to see a lot of stock traders and futures traders use candlestick chart because of the many advantages that you can find by using them.

The candlestick chart looks drastically different than online chart which most people who don’t even trade would recognize. A line chart of course plots where we closed during a particular day or hour, and forms a line by connecting all of those levels. However, candlestick charting offers color-coded units that show us as to whether or not the markets rose or fell during each one of those time periods. For example, most charting packages will use either red and green, black and white, or white and blue candles. They color code the body of the candle, to show whether or not it was a positive or negative move. Typically, it’s the darker color or the red that shows negativity, while lighter colors show positivity.

There are also wicks on these candles, and that shows the extreme highs and the extreme lows of that particular timeframe. For example, if each candlestick is representing one day, the top line shows just how high the market went during that particular trading session. It shows the absolute range if you will, and knowing the color tells us how high we went, but more importantly whether we were positive or negative, and of course we get the same functionality out of the line at the bottom of the candlestick which shows how low we went.

By being able to simply glance at the charts and see for example red and green candles, it’s easier to look at the trend and it gives you a very quick way to see whether or not the markets been more positive or negative lately. There are quite a bit of different ways that you can read candlesticks, and there are several different candlestick formations that you can use to trade. This is a bit beyond the scope of this particular lesson, but the advantages are in fact numerous.

The “body” of the candle, meaning the color-coded part, tells us exactly what happened during the timeframe. So for example, if you get a red candle, you know that the market opened up at the upper part of the body, and closed at the bottom. You read this market from left to right, so that means that at the top of the red candle on the left-hand side is where we entered, we may have gone a little bit higher and reach towards the top of the wick at the top of the candle if there is one, but turned right back around to fall as low as the lowest part of the wick on the candle, and close at the bottom of the red body. Of course the same is true with a green candle, or a lighter one, that shows positive market movement. We entered on the left-hand side and then rose and closed at the top of the green or lighter colored body.

With our charts you can see the same thing as a candlestick, but the difference is that the candle also shows you a color to the body and the open and close price of the market so it shows at a glance at how much the market has done. This makes candlesticks much more efficient than both line and bar charts, and that has a lot to do with white Forex traders tend to use them. One thing you should keep in mind is that you can read into the psychology of the market much easier with the candlestick chart thing you can align chart, because it shows everything that happened during that hour, week, or whatever timeframe you are looking at. This can most certainly give you a heads up on potential moves.