Isn’t it amusing to witness how emotions play a crucial role in the overall movement of stock markets?
Fear, hope, greed, regret, and ego are emotional triggers that significantly dominate the dynamics of trading. As you all know, stock markets are a battleground for the bulls and the bears. Bulls raise prices by going long, and bears lowering prices by going short. Unfortunately, people fall prey to some unsolicited advice and start trading erratically.
Now, this is where you go wrong!
Decoding market movements constructively is crucial before you begin trading. In the current scenario, there are varied methods to assess the movement of stocks. But candlestick patterns have attained a winning edge in deciphering the trading psychology of buyers and sellers. When more and more people exhibit a desired behavior in familiar circumstances, different candlestick patterns aid in gauging the near-term price direction.
Well, everything is not hunky-dory as it sounds, and a detailed understanding of candlestick patterns is crucial to analyze markets successfully.
What is a candlestick?
Popularly used in the Japanese rice trade, candlesticks have now entered the world of modern-day trading. As the name suggests, candlesticks resonate candles with wicks. They are rectangular-shaped (the body) with lines on either side (shadow or wick). Each candlestick is a depiction of one day’s worth of price data of stock. It shows the opening price, the highs, the lows, and the closing price of a stock in a specific period.
Candlesticks further get divided into two, Bullish and Bearish.
Bullish candlestick
A bullish candle is green in colour, highlighting that the stock price is likely to increase and about to move toward an uptrend. The bottom of the candle shows the opening price, and the top is the closing price.
Bearish candlestick
A red bearish candle highlights that the stock price is about to step into the decreasing trend and is more likely to fall. In contrast to the bullish candlestick, the top of the candle is the opening price, and the bottom is the closing price.
Market sentiments ultimately drive bullish and bearish candlestick formulation. So, the patterns stay for a short time!
For instance, you might have witnessed a knee-jerk reaction in ITC shares post the Budget 2023 announcement of an increase in cigarette taxes. The shares soared soon by the end of the market hours.
The movement of the bullish candlestick to bearish or vice versa is primarily influenced by the trend reversals impacting financial instruments like stocks, commodities, currencies, etc. Hence, clubbing daily candlesticks into some recognizable pattern aid traders in making buying and selling decisions.
What are the different bullish and bearish candlestick patterns?
Bullish and bearish candlesticks further get categorized into single and multiple candlestick patterns.
Single Candlestick patterns.
In layman’s language, single candlestick patterns are with just a single candle. So, judgment is based on one day’s trading action. Analyzing the length of the candle is crucial to know the overall range. The longer the candle length, the higher the trading activity, and vice versa.
Now look at the tabular presentation of varied single candlestick patterns and enhance the trading experience.
As you know, trading in stock markets is not a piece of cake, so a detailed understanding of varied candlestick patterns can give you an upper hand. School of Stocks is a perfect platform to guide you across.
How has FYERS helped traders in spotting a trade opportunity?
With a massive focus on customer centricity and an ability to keep pace with the fast-changing stock market space, FYERS launched App 2.0 in December 2022. The App has prolific products like Candlestick screeners, option chain, price alerts, and more. Candlestick screeners are one of the greatest products to help traders analyze stocks seamlessly.
All traders can now spot the right trading opportunity at the right time. Here’s a snapshot of Candlestick screeners on App 2.0 to help you trade strategically.
Now, for instance, you can use App 2.0, click on the bullish candlestick (Hammer), and check out the stocks falling under this category.
Hammer shows that the bulls are strengthening, and there is an expectation of trend reversal. All the traders looking forward to going long may find an opportunity to go ahead.
Conclusion.
As more and more new-age traders and millennials are stepping into the world of stock markets, there is a dire need to educate them. A lack of financial knowledge leads to the haywire selection of stocks. Technical analysis through candlestick charts is essential to understand trends and market sentiments.
In our next blog, we will explore the fascinating world of multiple candlestick patterns, where the combination of multiple candles reveals even more intricate market dynamics and provides traders with additional tools for analysis. Stay tuned to expand your candlestick pattern expertise and uncover new opportunities in the exciting realm of technical analysis.
Happy Trading.