What is a Candlestick Chart? In the Candlestick Shape Analysis Course, let's learn how to read Candlestick Charts and how to judge market trends all at once.

When I first started trading, I had no idea how to read candlestick charts and I was really pulling my hair out. But now it's different. When I look at candlestick charts, the market's "true intentions" are completely exposed!

What is a candlestick?

Candlestick charts (K-line) condense the price trends of a day using four prices (high, low, open, close). They display market sentiment and price information in different colors and shapes, making it easier for investors to analyze.

On the platform I often use, when the closing price is higher than the opening price, it displays "bullish (green)" candles, and conversely, when the closing price is lower than the opening price, it shows "bearish (red)" candles. This is based on the American convention, so caution is necessary. In Taiwan stocks, it is the opposite: bullish candles are red, and bearish candles are green!

The "lines" other than the body of the candlestick are called "shadow lines." The upper shadow line is called the "upper shadow" and indicates the highest price, while the lower shadow line is called the "lower shadow" and represents the lowest price. The length of these shadow lines can provide insight into the intensity of the market at that time.

What are daily, weekly, and monthly charts?

Candlesticks can be applied to various time frames, mainly including daily candlesticks within a day, weekly candlesticks within a week, monthly candlesticks within a month, and even yearly candlesticks within a year. The shape of the candlestick generally varies with different time frames.

For example, if we put the differences between daily and weekly charts in a table:

| Date | Opening Price | High Price | Low Price | Closing Price | |------|------|------|------|------| | 9/11 | 689 | 699 | 685 | 695 | | 9/10 | 678 | 688 | 674 | 678 | | 9/9 | 654 | 665 | 654 | 662 | | 9/8 | 672 | 675 | 672 | 675 | | 9/7 | 651 | 661 | 650 | 655 |

The daily chart is ideal for observing short-term price movements and is essential for day traders. On the other hand, for long-term value investors, it is more meaningful to observe the overall price fluctuations over several weeks or months using weekly, monthly, or yearly charts. Personally, I often use the method of looking at the weekly chart to understand the overall market trend and then searching for entry points on the daily chart.

How to Read K Lines

The market constantly changes, and the K-line shapes also change due to these four price fluctuations, ultimately reflecting market trends and sentiments. Below, we will explain the characteristics and meanings of various K-line shapes.

Bullish Candlestick without Shadows: Close = High. This pattern indicates that the stock price has continued to rise during the time frame without facing any resistance. Buyers are strong, and there is a possibility that the price will rise further. When you see this, you might think, "Well, there's no choice but to get on board!" However, the rise from here can often be limited.

Bullish Candle with Upper and Lower Shadows: When the upper and lower shadows are equal, the market is in a state of equilibrium, with the forces of both buyers and sellers balanced. If the lower shadow > upper shadow, the market is rebounding, but the buyer's strength is insufficient to break through resistance. If the upper shadow > lower shadow, the buyers are slightly dominant.

I often determine that "the market is volatile today" by looking at the length of the upper and lower shadows. Long shadows indicate significant price movements, so be cautious!

Tips for Analyzing K-Line Charts

The first rule of candlestick chart analysis: Do not force yourself to memorize candlestick shapes! Candlesticks can actually be understood logically, and there is no need for rote memorization.

Another important point is the "closing price" of the candlestick. The position of the closing price indicates which side is dominating the current market. In particular, if the length of today's candlestick body is more than twice that of past candlesticks, it indicates that the buying or selling power is strong.

This is my story of failure, but I used to trade only by looking at the closing price. However, if you do not observe the overall market trend, you can incur significant losses. Trading without considering support and resistance lines is tantamount to suicide!

In summary, it is important to understand the basic elements of candlestick charts and their meanings. To read candlesticks, you only need to grasp the range of closing prices and the length of the candlestick body; there is no need for rote memorization. By understanding the trends of the wave points, it helps in analyzing the overall market trends.

However, trading by only looking at the charts is highly risky. It is important to analyze in combination with various indicators and to thoroughly implement risk management. I have experienced significant losses with candlestick analysis, but that has now become a valuable lesson.