How to Read Candlestick Charts for Intraday Trading?

Understanding how to read candlestick charts is necessary for every trader who aims to make better buy-and-sell decisions. Traders can understand the market sentiments by simply knowing how each candle represents the opening, closing, high, and low prices. They can also use these signals to plan accurate intraday trades. This guide will explain how to read candlestick chart for day trading, why use them in the stock market, and will provide some beginner-friendly insights. 

How to Read Candlestick Charts? 

Here is a step by step guide on how to read candlestick charts. 

Step 1: Identify the timeframe 

Select the time period (1 minute, 5 minutes, daily, weekly) to understand whether the chart reflects short-term trading or long-term trends. 

Step 2: Understand the candlestick structure 

There are four data points shown by each candlestick that are open, high, low, and close. The body of the candle shows the open–close range, while the wicks show price extremes. 

Step 3: Read candle colour and direction 

If the candle is green or hollow, then it shows that the price closed higher than it opened. A red (or filled) candle shows the price closed lower than it opened. 

Step 4: Analyse candle size and wicks 

Candle size and wicks play an important role. If the body is longer than, it indicates strong buying or selling pressure. If the upper or lower wick is long, it shows that the price was rejected at higher or lower levels. 

Step 5: Observe patterns and context 

Single or multiple candlestick patterns should be analysed in relation to trend direction, support resistance levels, and overall market context. 

Candlestick Patterns for Day Trading 

The candlestick patterns used to assist traders in examining the price movement and determining intraday reversals or continuations include: 

1. Doji 
   Shows indecision as the “open” and “close” are nearly equal. 
   Useful for spotting trend pauses or possible reversals. 
2. Hammer 
   A hammer appears after a downtrend with a small body and long lower wick. 
   It indicates buying support and a potential bullish reversal. 
3. Inverted Hammer 
   Long upper wick after a downtrend. 
   Suggest buyers are attempting to push prices up. 
4. Bullish Engulfing 
   Bullish candle covers the previous bearish candle. 
   Signals strong buying momentum. 
5. Bearish Engulfing 
   The bearish candle covers the previous bullish candle.  
   Implicates that selling pressure is higher. 
6. Piercing Pattern 
   This trend occurs when a bullish candle is closed above the middle of the last bearish candle.  
   Shows increasing purchasing power. 
7. Dark Cloud Cover 
   A bearish candle closes below the midpoint of the previous bullish candle. 
   Warns of emerging selling pressure. 
8. Morning Star 
   It is a three-candle pattern signalling a bullish reversal. 
   Useful for spotting the end of a downtrend. 
9. Evening Star 
   The top of an uptrend has a three-candle bearish reversal pattern.  
   Refers to declining purchasing power. 
10. Shooting Star 
    Long upper wick at top of an uptrend. 
    Shows rejection of higher prices and possible reversals. 

Why Use Candlesticks in Stock Market? 

After candlestick chart reading, traders and investors can understand the price behaviour quickly and accurately. Here are the key reasons: 

• Visual representation: Candlesticks use simple and easy-to-read visual representation of price movement.  
• Indicates market direction: Traders are able to recognise buying or selling pressure immediately using the colour and size of the candles. 
• Provides detailed price data: Each candle displays open, high, low, and close. This helps investors with precise analysis. 
• Identify trend reversal: Single trends, such as Hammer, Doji, or Engulfing, are used to identify early changes in the trend.  
• Applicable to intraday trading: Candlestick charts are useful for shorter periods such as 5-min and 15-min. 

Tips for Beginners 

The following are some key tips for beginners.  

• Start with basic patterns: Focus first on easy patterns like Hammer and Doji before learning advanced ones. 
• Use higher timeframes to practice: Begin analysing on 30-min or 1-hour charts as these reduce noise and give clearer signals. 
• Confirmation is required: Do not trade on one candle; wait to see either volume support or trend of the next candle. 
• Mark support and resistance: Candlestick patterns are more effective when they are drawn around significant levels of price. 
• Trade only high-probability setups: Not every pattern works under every circumstance; only choose patterns that have a high probability of success. 

Disclaimer: All investments are subject to market risks, economic conditions, regulatory changes, and other external factors. Returns are not guaranteed and may vary based on market performance and investment tenure. Investors should assess their risk tolerance and financial objectives, conduct their own research, and consult a qualified financial advisor before making any investment decisions.   

Conclusion 

Reading candlestick charts helps traders gain knowledge about the market sentiments, identify price trends, and make informed trading decisions. Traders can easily identify reversals or continuations based on the patterns of every candle and identify them more easily by understanding how a candle reflects the open, high, low, and close. These insights are even more useful when applied to support-resistance levels. Traders can use a trusted online trading app, which can provide real-time charting tools. Overall, reading candlestick charts will provide traders with a better place to strategise good entry and exit points in rapidly moving markets.