Good morning, Daily Direction readers!
Markets are closed today in observance of the Martin Luther King Jr. holiday.
So today I’ll provide you with a crash course in candlesticks and tick values so you can have a better understanding of how I utilize my charts to discover trading opportunities in the futures markets.
Traders frequently inquire about the functionality of my timeframe charts. They want to learn how to read candlestick charts. And since our whole trade setup revolves around our charts, this is an important question to ask! However, many trading gurus are hesitant to provide this info. But I’m not like those other guys!
Candlestick charts may appear confusing at first, but once you grasp how they function, they are simple to comprehend.
Let’s dive in and talk about candlesticks and ticks!
Naked price action is critical information for any trader. It tells you exactly what the price is doing at any given time. The price action dictates what’s going on in the market. It’s important to remember this. But how can we visualize and track price action as we prepare to trade? That’s where candlestick charts come in to play.
For more information about how I use my charts to predict future price action, be sure to read my article on the subject!
Now let’s explore the details of candlestick charts and how they function…
The Meaning Behind Candlesticks
A chart is made up of lots of individual market candlesticks. There are several types of candlesticks, but let’s take a look at bullish and bearish. You can often see green and red bars scattered all over charts. What do they mean? How do you interpret the market’s activity through these candles?
A green candle represents a bullish market. A bullish candle means that the price has increased over a given period. Remember: green means positive price movement.
A red candle typically signifies a bearish market. This means that the price has decreased over the specified period. The market is down. Remember: red means negative price movement.
If you’re looking at a 5-minute chart, each fully-formed candle represents 5 minutes of price action. An hourly chart means that each candle represents an hour. A day chart signals a day’s worth of activity, and so on. These timeframes play a pivotal role in helping us determine when and how we should enter a market.
Using Charts Correctly
Traders garner information from these candles. They tell you all you need to know about what’s happening in the market.
The rectangular part of the candle is known as the “Real Body.” It shows us the specific price action relating to the opening and closing price.
In terms of the bullish candle, the bottom of the body shows the opening price, while the top shows the closing price. Bearish candles are the exact opposite. The bearish candle’s top is the opening price, while the bottom is the closing price—since the bearish candle is displaying a price decrease.
When looking at charts, you’ll often see candles with vertical lines stretching on both ends. These vertical lines are referred to as the wicks of the candles. The wicks indicate the highest and lowest price of the period. The price would have touched the very top and the very bottom of the wicks as the candle was forming for closing. This is invaluable information for a trader as it gives us an idea of the overall price range.
These candles represent ticks. These ticks are the overall price movements within a specified timeframe. In futures markets, ticks are how we make money. Each tick represents a value in a futures contract. The more upward ticks we see in a trade, the more money we make. Check out my article on tick values to understand how we use them to make profitable trades. It’s another resource you can leverage when building your trading strategy!
The Bottom Line
The information shown above includes some of the fundamentals for reading a candlestick chart. The data on the charts is all based on price activity. Bullish candles indicate that the market is moving higher as the price rises. When you see bearish candles, it means the price is dropping or the market is declining. The highest and lowest prices are represented by wicks on both ends of the market candlesticks.
Candlesticks are good indications of a traders’ mood. We’ll see more bullish candles when traders are optimistic in a market. Bearish candles will dominate the chart if they are apprehensive about the market.
Candlesticks are used by smart traders to make trading choices because they may help predict the short-term direction of price movements. With enough practice, you’ll be able to interpret trading chart patterns in no time.
To learn more about how to become a better futures trader, take advantage of my free trading materials. Also, don’t miss the Daily Direction tomorrow morning as we gear up for another week of trading!
Keep On Trading,
Stay tuned for my next edition of Josh’s Daily Direction.
And if you know someone who’d love to make this a part of their morning routine, send them over to https://joshsdailydirection.