If you trade continuously, understanding charts and candlestick patterns will give you a real advantage in determining when to enter and exit a trade.
What are the basics of charts?
The time frame of 15 minutes, 1 hour, 4 hours, daily, etc... The higher you go, the more you get a long-term view, and the lower you go, the more you feel the momentary fluctuations. The vertical axis represents price, and the horizontal axis represents time.
Volume: The bar below shows the trading volume; the longer the bar, the more activity there is.
💡 Always start with a 1-hour or 4-hour timeframe if you are a Swing Trader and a 15-30 minute timeframe if you are a Scalper.
Candlestick Anatomy
Each candle has
Body: The difference between the opening and closing price.
The wicks/shadows: The highest and lowest price reached during the period.
Green color (= closing higher than opening) or red (= closing lower).
Famous candlestick patterns and their usage
Hammer
Small body above, and a long lower wick.
Occurs after a decline; indicates that buying traders pushed the price back up.
Entry signal: If you confirm an uptrend after it in the next candle, you may enter Long.
Shooting Star
Small body below, and a long upper wick.
Appears after a strong rise; indicates that traders sold at this hour.
Exit or Short entry signal: If the next candle goes down, then a sell may come.
Bullish/Bearish Engulfing
Bullish: A green candle 'engulfs' the red candle before it → Confirmation of an uptrend.
Bearish: A red candle 'engulfs' the green candle before it → Confirmation of a downtrend.
Entry/Exit signals: They are stronger when accompanied by high trading volume.
Doji
Its body is a 'very thin rectangle' with equal wicks.
It indicates a balance of buying and selling forces, and it often acts as a reversal point.
Follow-up: Wait for confirmation of uptrend or downtrend before making a decision.
How to determine entry and exit points?
Identify support and resistance: Horizontal lines at the highest/lowest price points where rebounds occurred.
Look for patterns in these areas:
Hammer candles at support → Buy signal.
Shooting Star at resistance → Take profit or sell signal.
Confirm with the indicator:
For example, RSI below 30 with Hammer → Buying strength. And above 70 with Shooting Star → Overbought and profit-taking.
Place Stop-Loss below the body of the candle or at the support/resistance you have chosen to protect your capital.
Know your target: Based on the risk-reward ratio like 1:2 or 1:3.
Start with an appropriate timeframe for your type of trading.
Understand the body of the candle and its wick before focusing on the shape.
Wait for confirmation after any pattern appears before entering the trade.
Combine support/resistance levels with indicators to strengthen your decision.
Always use a stop-loss and set a profit target to protect your capital.
By following these steps and using candlestick patterns consciously, you can identify the best entry and exit points and reduce your risk in the market.
I hope these steps have clarified professional introductions to reading the chart... And finally, practice and training are the secret! 🚀