The backbone of day trading is the use of technical indicators. And the most time-honored technical indicators are trading symbols that evolved in the rice trading markets of Japan in the era of the Samurai. Due to the fact that this trading approach was developed in Japan and because of the unique shapes of the indicators, these patterns are referred to as candlestick patterns for Japanese candlesticks. Many candlestick patterns for day trading are exactly the same ones used centuries ago and continue to work just as well.

Day Trading Candlestick Patterns

Candlestick patterns are useful in day trading as each individual symbol shows price points for open, close, high, and low. These price points can be for a few minutes, an hour, a day or even longer intervals. The most commonly used charts for day trading are five and fifteen minutes. A “candlestick” includes a central rectangular body whose height is determined by the high and low prices for the chosen interval. A thin line of “wick” extends above and below the candle body to represent the high and low prices for the same interval. The color of the candle body is light for a day when the commodity, stock, or currency pair closed higher than it opened and dark when it closed lower.

Best Candlestick Time Frame for Day Trading

The best candlestick time frame for day trading will depend, to a degree, on the market that you are trading and the approach that you take. Although five and fifteen minute charts are commonly used, more insights can be gained by adding longer and even shorter intervals. As a practical matter a trader can only follow just so many charts so it is generally wise to pick one shorter interval and one longer interval and then add another indicator such as a moving average.

Best Bullish Candlestick Patterns for Day Trading

A candlestick pattern that commonly identifies the end of a downward trend and the start of upward movement is the hammer. This pattern is a single candlestick that sort of looks like a hammer. It typically appears at the end of a downtrend. The commodity, stock, or currency pair falls significantly during the day, following the previous trend. Then it reverses and regains most of or more than its losses to close near the opening price. The hammer is commonly followed by progressively higher prices on successive days.

How to Read Candlestick Charts for Day Trading

Japanese candlesticks are popular with many traders because they are generally easy to read. The body of the candle is color-coded to indicate an up or down trading period and the lines or wicks extending above and below show at a glance the full price range for the same period. These patterns have unique configurations making it easy to see when a specific symbol or set of symbols making up a pattern have appeared. Although these symbols are quite reliable, experienced Candlestick traders take into consideration the prior trading period and outside factors that are likely driving the market. They also tend to wait for a period or two of confirmation before going “all in” on a trade based on a single Candlestick chart pattern.

Candlestick Day Trading Strategies

Japanese candlesticks can be applied to virtually any day trading strategy. For example, Candlestick reversal patterns include the hammer, bearish reversal bar, bullish reversal bar, shooting star, bullish engulfing candlestick, and various Doji candlesticks. In the case of the Doji, this signal does not necessarily indicate the next market direction but it does indicate that the market is getting ready to move out of its current range. Because candlesticks provide uniquely clear insight into what the market is about to do next, a day trader can switch their strategy to fit an evolving market.

Candlestick Reversal Patterns for Day Trading

Some of the best day trading profits occur from successfully trading as one trend exhausts itself and another begins. Candlestick patterns are not necessarily any more accurate than other approaches but they tend to be easier to spot. It is important to put what one learns from a single candlestick signal in context. For example, the hammer signal is useful in deciding when a downward trend is getting ready to reverse. This tells you that it should occur in a price downslope in order to accurately predict an upswing. Candlestick experts are adamant that such signals need to make sense in the context of the market to be successfully tradable.

Day Trading Technical Analysis Candlestick Patterns

Japanese candlesticks were the first use of technical analysis in predicting price movement. The basis of technical analysis is that the market already knows all of the fundamental information needed to make decisions. Technical indicators tell you how market sentiment is responding to that information. It was in rice markets in Japan in the era of the Samurai that traders first realized that one could simply look at evolving price patterns in order to accurately predict prices and did not need even to look at fundamentals like supply and demand as these were already built into price information.

With Japanese Candlesticks as with all technical approaches it is important to exercise discipline in order to successfully enter, manage, and exit day trades