Candle charts or the go-to charting style across leading trading platforms, so understanding how to read them is imperative. Candlestick charting helps in displaying price information in a particular market. Unlike typical line charts, each series on a candle chart have these data points:
- The opening price
- The high price
- The low price
- The closing price
Different candlesticks come in different colors and represent different positions on exness. However, our focus in this article is to learn how to read red candle charts. Let’s take a look.
Definition of a red candle chart
A red candle chart depicts that the closing price is below the opening and closing price. It’s also used to indicate that the close is below the previous closing price but above the opening price- in that case, it will appear hollow.
The candlestick consists of the high and low prices of the period represented by shadows and the open and closing prices represented by the candle’s body.
What a red candle chart means.
Red candlesticks show that the prices decreased during the period, and the high, open and close. The shorter the candle, the smaller the price movement during the period. You can easily change the colors of the candlesticks using most chart software. However, each color has a meaning.
The most common colors are black filled, black hollow, red filled, and red hollow.
- Black filed candlesticks appear when the close is higher than the previous close and below the open.
- Black hollow indicates that the close is higher than the previous open and close.
- Red hollow appear when the close is higher than the open and below the previous close
- Red-filled candlesticks indicate that the close is lower than the open and the previous close.
The most popular candlesticks are the black hollow, and the red filled. The black hollow indicates a significant uptrend, and the red filled indicates a significant downtrend. The black filled and the red hollow aren’t as common because it takes a gap for them to appear.
Analysts can deduce a lot from a candlestick color without looking at other features of the chart. For instance, a black filed candlestick can depict that the prices are increasing, while a red candlestick will show a decrease in prices. You can use this information to your advantage to test market sentiment.
However, most people use candlesticks and other analytic tools. For example, they can gauge the market position with red candle charts and then check previous patterns to understand the market dynamics. You can also use the red candle charts with other technical indicators like the relative strength index. The RSI is used to show the strength of a trend in a market.
How to use the red candle chart
A red candlestick will show that the prices decreased during the period. Therefore you’ll see red candlesticks often, especially in volatile markets. That means that analyzing the red candlestick and a combination of other aspects greatly influence the final decision you make. There are many ways you could use the red candle charts to your advantage. Here’s an example:
Red candlesticks are very small when there is an uptrend. On the other hand, large candlesticks depict a big selling day or a shift in short-term market sentiments. In a downtrend, you will see large candlesticks. Small red candles followed by large candlesticks depict a slowdown in selling or indecision. If the short-term trend increases, you will see large red candlesticks followed by black hollow candlesticks.
Are bar charts and red candlesticks different?
Bar charts and candlesticks depict the same information- the low, high, open, and close. However, the information is showed in different ways. A bar is a line without a body and has a horizontal line on the right showing the close and another horizontal line on the left to mark the open price.
Are red candle charts always efficient?
The answer narrows down to how the trading platform you’re using draws the candlesticks. Some platforms omit the prior close, while others have the close position on their candlesticks. Most platforms give you the freedom to make your candlesticks filled or hollow depending on the close versus the open. It’s essential to hover the cursor to note the high, open, closing, and low prices. You should also check how your platform has labeled the candlestick based on the figures.
While most traders depend on focusing on the movements in different candles, new price bars come up almost every second. This might not suit everyone, especially the newbies.
Market analysis involves multiple aspects, and those traders who rely on candlesticks alone may be disadvantaged. The red candle chart only represents a season of price movement. It is more important to consider the overall picture before checking on the market aspect to make a decision.
The candle chart only represents historical data. However, with enough practice,
you can easily use patterns to make decisions on where to invest.
Final Thoughts
A red candlestick is a perfect way to analyze current market trends. However, it would be best if you also focused on other factors to invest in a position. With these tricks in mind, you have all it takes to read a red candle chart.
