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Role of Candlestick Visualizations in the Stock Market

By Emiley Edward posted Fri May 27, 2022 07:56 AM


             In order to create lucrative strategies, traders rely on technical indicators to signal different movements in the market. Candlesticks are a reliable source of information for investors everywhere. Traders can use candlestick chart patterns to determine possible price movements. These candlestick visualizations are therefore very important tools for traders, both old and new.

Candlestick visualizations help traders understand the general sentiment of the market. If a sentiment changes, it will be evident on the candlestick chart through different candlesticks. This signals a trend reversal and an opportunity to take advantage of the changes.

To create a lucrative strategy, a trader needs to know the price action of a particular asset over time. The best way to do this is by studying the candlestick patterns because each individual candlestick packs four pieces of data for a particular session, i.e. the high, open, close, and low price for a particular asset. The color of the candlestick shows the direction of the market. If it is green, it indicates an uptrend, if it is red, it indicates a downtrend.

Candlestick patterns can be complex and hard to decipher for a new trader. However, if a trader takes the time to know different candlesticks and what they mean, it becomes easier to study the candlestick visualization and predict where the market is going and his next best strategy to make a profit.

For instance, when a candlestick chart is at the bottom of a downtrend, all a trader needs is a signal that shows that the market will indeed be reversing to an uptrend. One way to be sure of a reversal is by spotting a Dragonfly Doji while the downtrend is at the bottom and all other indicators show a reversal is upcoming. When a Dragonfly Doji shows up following a bearish move, it is better to brace yourself for a trend reversal.

What is a Dragonfly Doji?

Each individual candlestick signifies something on its own and as a part of the candlestick pattern. What is a Dragonfly Doji candlestick? One of the most popular candlesticks is the Dragonfly Doji, a reversal pattern that is usually present at the bottom of downtrends. This candlestick anticipates a rebound or a rally. The main condition of the Dragonfly Doji is that the open and close are very close to each other, and the high coincides with the close or at least has a very small upper shadow.

Most traders identify the Dragonfly Doji as the T-shaped candle with a very long lower shadow; while the open, close, and high are on the same level. Although the ideal Dragonfly Doji is quite rare, you can easily identify it especially if you are studying a chart’s downtrend.

The Dragonfly Doji forms when the bears are actively pushing the price downward, but they let the bulls take control and buoy the price back to the open levels. As the bears actively push the price downward, the bulls take over, and buying pressure pushes the price back up. This movement indicates that the existing downtrend is not supported by the general sentiment, and an uptrend is upcoming.