If a picture is worth a thousand words, the same can be said for a stock chart. Knowing how to read a candle chart can tell you a lot about how a stock trades.
Strip out all the indicators and moving average lines, relative strength lines and volume bars and you’re left with price action. That’s the most basic , and probably most important feature. On a stock’s price candle, which gives the daily or weekly price range, locate the hash mark or top and bottom of the candle’s body.
This short horizontal lines shows where the stock closed for the day or the week. In the case of the candle body, the top shadow shows the high of the day and the lower shadow line shows the low of the day.
Why should you pay attention to where the stock closes for the day?
It can help you gauge whether higher volume buyers are lending support to the stock. It’s a good sign if a stock keeps closing in the upper half of its daily or weekly price range. That means the big boys are likely snapping up shares, prompting the stock to rise or at least hold firm.
But a stock that often closes near its session lows signals weak demand for shares. Could mean the big boys are heading for the exits.
Hash marks or high candle body closes become even more important while a stock forms a base pattern. You’d want to see a stock close in the upper half of its weekly range at the bottom of a base or as it is building a support level.
A bullish reversal at the bottom of a base or support level is also a positive sign. This occurs when a stock declines sharply but ends up recouping most, if not all, of it loss. The hash mark should for a “T”. Big Players may think the stock has sunk enough, and may be ready to pick up shares.