How to Read Candlestick Charts for Stock Patterns

One of the investing strategies you will learn about as a new beginner investor is to develop a strategy by analyzing stock charts and data. This is often referred to as learning how to read candlestick charts for stock patterns. There are mixed emotions and varying opinions on whether stock market candlestick pattern charts are an effective way to find profitable stocks, but it is something as new investor you must be familiar with and learn about as part of your journey to becoming an experienced stock trader.

In this article we will go over the basic building blocks of using candlestick pattern charts and how you can understand what all those boxes and lines mean.

The best way to get an understanding of how these charts work is to examine and study a visual example. This makes it much, much easier to learn how to read what these charts mean and will help you determine whether it’s a strategy you should use for trading or investing.

Here is an example of how to read candlestick charts:

Now, if you look at what is above and it makes absolutely no sense at all, do not worry – it’s actually quite simple!

White/Hollow candlesticks {sometimes green} typically mean it is a “bull market” which means stocks are trending up.

Black {sometimes red} candlesticks mean that the stock is trending down.

The white candlesticks body starts at the bottom of the shadow, indicating the stock market opening, whereas the black candlesticks start with the open at the top and trend down.

The shadow, also known as the wick, is the tail which is at the top and the bottom.

Now that you have a basic understanding of how to read a candlestick chart, you’re ready to start learning various candlestick chart patterns.

Are Candlestick Charts a Good Indicator for Trading Stocks?

As I said earlier, there are many different opinions on whether these stock charts can be an accurate prediction of the future. Always bear in mind that none of us are fortune tellers and few of us have psychic abilities to be able to know what a stock will do within a few hours, a day, a week, a month, or even over the course of several years.

That being said, there are many investors and traders who rely on candlestick patterns when they make decisions on which stocks to invest in. It can also be helpful for when you decide to short sell a stock.

If you want to get the best experience in testing out these candlestick pattern strategies, I highly recommend you do this in an online stock market game first. Why? Because as I said, it is hard to know whether the chart will be accurate or whether you have analyzed the data correctly at first.

So, in order for you to gain experience, the best thing you can do is paper trade with fake money before heavily investing and risking large sums of real money. The more practice and the more research you do, the more likely you will be able to form your own independent opinion and determine whether this is a strategy which you wish to pursue.

Have any questions about our diagram sharing candlestick stock pattern chart terminology? I hope you find it helpful – and as always ask any questions you may have below!