Red Candle Meaning : A red candlestick is a price chart that shows a security’s closing price is lower than both its opening and prior closing prices.
A candlestick can also be coloured red if the close is lower than the previous close but higher than the open, in which case it will appear hollow.
What is the meaning of a red candlestick?
The candlestick is made up of the high and low points of the period, which are represented by the shadows, as well as the open and close points, which are represented by the real body or thick section of the candle.
When the close is below the open and prior close, a red filled candle is common.
When the close is below the previous close but above the open, it is called a hollow red candle.
Different charting platforms may draw candlesticks differently; some may not take the previous close into account.
What Message Does a Red Candlestick Send?
A red candlestick indicates that the price, as well as the open, high, low, and close, moved lower during the period.
The bigger the price fluctuation over time, the longer the candle.
The colours of candlesticks can be changed in most charting software, although the most frequent hues are black filled, red filled, red hollow, and black hollow.
Each colour has a distinct meaning:
When the close is higher than the previous close but lower than the open, Black Filled Candlesticks form.
When the close is greater than the previous close and the open, Black Hollow Candlesticks form.
When the close is below the open and prior close, it is known as a red filled candlestick.
When the close is higher than the open but lower than the previous close, Red Hollow Candlesticks form.
Black hollow candlesticks, which indicate a strong uptrend, and red filled candlesticks, which indicate a strong decline, are the two most prevalent varieties of candlesticks.
Because they require a price gap, red hollow and black filled candlesticks are less frequent.
Before looking at any other features of the chart, technical analysts may rapidly gain a lot of information from the colour of a candlestick.
A black filled candlestick, for example, may indicate that the price is getting more top-heavy, whereas a red filled candlestick indicates a clear and severe downturn.
These insights can be used by traders to measure market mood.
Candlestick charts are commonly used in conjunction with other types of technical analysis by most traders.
For example, they could utilise candlestick charts to evaluate market mood before employing chart patterns to spot probable breaks or breakouts.
Technical indicators can be used to confirm market sentiment as well.
The relative strength index (RSI), for example, can be used in conjunction with candlestick charts to highlight the strength of a trend in one direction.
How to Use a Red Candlestick as an Example
A red candle simply indicates that the price fell during the period. These kind of candles will appear regularly.
As a result, red candlesticks must be evaluated as a whole, as well as in conjunction with other types of analysis.
This could be performed in a variety of ways. As an example, consider the following:
Red candlesticks are often tiny during an uptrend. A large red candle signals a strong selling day and perhaps a shift in short-term mood.
Red candles are usually quite huge during a decline. Small red candles, especially those that follow enormous red candles, can signal hesitation or a slowing of the selling process.
The short-term trend has turned higher if massive white (black hollow) candlesticks follow.
On the graph below, you can see these tendencies.
When large red candlesticks appeared on the price chart of Apple Inc., the RSI was already in a steady drop.
This was followed by a significant drop. Prior to the collapse, the massive down candles combined with negative divergence may have been used as an exit signal.
Bar Charts vs. Candlestick Charts
The same information—open, high, low, and close—is displayed differently in candlestick and bar charts.
A bar is a vertical line that, like a candlestick, has no real body and consists of a small horizontal line to the left that marks the open price and a little horizontal line to the right that marks the closing.
Use of Red Candlesticks for Trading or Analysis Has Limitations
It’s critical to understand how the trading software creates candlesticks.
Some platforms don’t consider the previous closure, whereas others do.
Traders can also choose to fill or hollow all of the candlesticks based on the close versus open, for example.
Hover the cursor over the candles to see what your platform is doing.
Take note of the open and close prices, as well as how the platform has coloured the candle based on these data.
New pricing bars appear on a regular basis. While price action traders focus on candle-to-candle changes to assist them locate trading opportunities, this isn’t for everyone.
Many traders don’t look at each each candlestick, preferring to focus on the big picture.
Because a candlestick only represents one period of price action, this is the case.
The big picture is more relevant since it shows long-term trends, which is what many investors are interested in.
Candlesticks are data points from the past. They merely reflect what has occurred.
Certain patterns, with practise, may alert a trader to a predicted price shift in one direction or the other.
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