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Candlestick Patterns Basic Knowledge
Candlestick charts are one of the most powerful technical analysis tools used by the traders in the market.
They are also one of the most prevalent.
Most technical analysis programs use candlesticks as the default mode of charting.
If used correctly, candlesticks can give a signal in advance of much other market action.
They can be a leading indicator of market activity for the traders.
But just knowing about it cannot help the traders in their trading as there are perhaps more than
100 individual candlesticks and candlestick patterns available in candlestick charts.
This is a daunting amount of information for a trader to understand and apply for own benefits
For those not familiar with the details of candlestick charting, it’t important to go over the fundamentals.
The difference between the open and the close is called the real body of the candlestick.
The higher of these values creates the upper extreme of the real body, and the lower of these values creates the lower extreme.
The amount the stock close in price above the real body is called the upper shadow.
The amount that the stock fell below the real body is called the lower shadow.
If the candle is green or white, it means the lower extreme is defined by the opening price and that the stock price close during the period being charted.
If the candle is red or black, then the lower extreme identifies the closing price and the stock fell during the period.
Candles may be created for any time period: Monthly, weekly, hourly or even a minute.
Regardless of the time frame, candlesticks should not be judged in isolation; traders
should always look for follow-up action to confirm any signals during the following applicable period.
Otherwise they may fail to gather the actual knowledge of the market and risk their trading opportunities.