Hello traders, I'm Luke from Disciplined Trader This is the first video in the Trading Basics
series and in this one I want to introduce you to candlesticks.
I will explain everything from what they are to how they form.
Candlesticks are the most commonly used method of displaying the price movement of a market
on a chart.
Each candlestick chart will have the time scale on the horizontal axis and the price
scale of the vertical axis.
Each candlestick chart you see will display candles in a particular time interval.
These intervals can be anything such as 5 minutes, 1 hour, 4 hour, 1 day, 1 week etc.
So for example, here we are looking at a 5 minute chart, so this means that each candle
takes 5 minutes to form and represents that 5 minutes of price action.
Price action simply refers to the movement of the price.
So how do candles show us where the price has moved?
Let's take a closer look at a candle The first thing to note about a candle is
its colour.
We call a green candle a Bullish candle as this signals that the price has moved up overall
during the time period it represents.
We call a red candle a Bearish candle as this signals that the price moved down overall
during the time period it represents.
Candlesticks also quickly show us four important pieces of information about the price movement
they represent.
They show us the opening price, the highest price it reached, the lowest price it reached
and closing price for the time period the candle represents.
They show us this information through the two components that make each candle up: the
candle body and the candle wicks.
The body of a candle is the thick coloured part of the candle and the wicks are the thin
lines coming from the top and bottom of the candle.
If the body is green in colour (so a bullish candle) then the base of the body shows the
price the candle opened at, at the start of the time period the candle represents.
The top of the body shows the price the candle closed at.
The bottom of the lower wick shows the lowest price the price reached and the top of the
upper wick shows the highest price the price reached during the candle's time period.
When looking at a red (bearish) candle, the upper and lower wicks show us the same information
but this time the top of the body shows us the price the candle opened at and the bottom
of the body shows us the price the candle closed at.
So let's look at an example of how these candles form:
First the candle opens Then it moves down so we have a red body
Then it moves back to the price it opened at so we are left with just a lower wick
Now it moves up and so a green body is formed Then the price falls a little again but not
quite to the opening price so we are left with a small green body and a wick to the
top and bottom of the candle Now the price drops further to the original
opening price leaving us with just an upper and lower wick with no body
Finally the candle moves down slightly and closes at this price.
The resulting candle has a small red body as overall the price moved down slightly from
the price the candle opened at.
We also have an upper and lower wick to show the highest and lowest price the price action
reached during this candle's time period.
Then the next candle opens at the price the previous candle closed at.
And the price continues to fluctuate this this manor
As you may have spotted from that previous example, it is possible for a candle to form
with a very small body or no body at all.
We call these candles Doji candles.
These candles from when the opening price and closing price are very close together
or the same price.
Lastly I just want to explain that there are alternative methods of displaying price movements
on a chart to candlesticks Within most charting platforms are methods
such as line charts, Renko Charts, Range charts, Heikin-Ashi charts among others.
These charts display the price movement in a different way to candlestick charts which
can have its uses for certain trading strategies although the vast majority of traders use
candlestick charts.
If you are new to trading I would recommend sticking with candlestick charts as this is
the de facto method for the majority of traders and it is still the method I use today.
I hope you have found this video useful.
Thank you very much for watching.
If you enjoyed the video, please feel free to drop a like on it.
If you have any questions or want me to cover any other topics in future videos, please
let me know in the comments below.
Also subscribe to the channel for more videos like this one.
I will be continuing this trading basics series to provide new traders with all the knowledge
they need to get started.
Thank you again and I hope you all have a good trading week.