Maddie James
Candlestick charts offer a unique perspective on price charts and can be a valuable tool for traders. TD Ameritrade's thinkorswim® platform offers a range of candlestick patterns and tools for analysis. The platform allows users to scan for traditional patterns or create their own custom patterns. With the auto pattern recognition feature, traders can gain insights into various time frames for both long and short-term investments. The length of the wicks and body of a candlestick chart shows the overall range and the opening and closing prices. While candlestick patterns can provide valuable insights, it's important to note that there are countless pattern combinations, and traders should employ flexible pattern identification methods.
| Characteristics | Values |
|---|---|
| Platform | thinkorswim® |
| Platform owner | TD Ameritrade |
| Customization | Custom patterns can be created and applied to charts |
| Color | Up candles are green, down candles are red, and unchanged candles are doji |
| Shadows | Vertical lines above and below the candles' real bodies |
| Wicks and body | Show the overall range and the range between the period's opening and closing prices |
| Categories | Trend reversal and trend continuation |
| Time frames | Available for both long and short-term investments |
| Education | Access to a full range of education resources, including a technical analysis curriculum |
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What You'll Learn
Using the thinkorswim® platform
The thinkorswim® platform is known for its powerful charting tools, with hundreds of studies, tons of drawing tools, and endless customisation options.
By default, the thinkorswim® platform displays the 1-year 1-day time frame, with candles aggregated on a daily basis. Each little candle represents one day's worth of trading activity. To change this time frame, click the Time Frame button above the chart and specify the desired aggregation period and time interval. Each time frame is represented by an icon, making it easy to identify your configurations. You can also pick a time frame from your Favourites list.
The default chart style is a candlestick chart. To change the chart type, hover your cursor over Chart Type and select your preferred option. Each chart type is represented by an icon. While chart types are characteristic of the price plot in Standard mode, you can use advanced modes (Monkey Bars, Monkey Bars Expanded, or Seasonality).
The thinkorswim® platform allows you to scan automatically for traditional candlestick patterns or create your own using the candlestick pattern editor. When creating a custom pattern, you can choose a custom name.
You can also use Charts in a grid layout, allowing you to open multiple charts in a single screen. Each instance is independent and displayed in an individual grid cell. Move the cursor over the grid until you highlight the number of columns and rows you want, then click when the desired grid is highlighted.
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Customising candle colours
Customising the colours of your candlesticks can be done through the Appearance Settings. This is where you can disable the default option of filling downtick candles, as well as customise the candle's colour and line width.
It is worth noting that zooming out too far on a candle chart can make it harder to distinguish candle borders and fill colours.
Traders have different colour preferences for their candlesticks. Some prefer to use black and white candles, while others prefer to use grey and black with a white inside bar indicator for candles that don't trade above or below the previous candles' open/close. Some traders also like to change the background colour to challenge their bias.
Some traders use candle colours and hollow/filled candle bodies to display different pieces of technical information in a streamlined and less crowded way on the chart. For example, using hollow candles as a default and filled-in candles to indicate when a stock is a leader in its sector.
Unfortunately, it is not possible to change the candle colours on the mobile app. However, studies have the ability to change plot colours.
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Understanding candlestick patterns
Candlestick patterns are a form of technical analysis that can be used to predict short-term price movements and market sentiment. With origins in 18th-century Japan, candlestick charting is based on the idea that market prices are influenced by trader psychology and the balance of power between buyers and sellers.
Each candlestick represents price information for a specific unit of time, such as a trading day or an hour. The four key components of a candlestick are the open, close, high, and low prices for that time period. The open price is the first price at which an asset trades in a specific day. The length of the wicks and body of a candlestick show the overall range and the range between the opening and closing prices.
Candlestick patterns fall into two main categories: trend reversal and trend continuation. Bullish patterns, which indicate a higher probability of upward price movement, often exhibit characteristics such as larger green bodies, long lower shadows, and short upper shadows. These patterns suggest that buyers are in control and driving prices higher. The hammer candlestick pattern, for example, is formed by a short body with a long lower shadow, indicating that a strong buying pressure drove the price back up despite initial selling pressures.
On the other hand, bearish patterns indicate a higher likelihood of downward price movement, suggesting that sellers are driving prices lower. The hanging man pattern, which is the bearish equivalent of the hammer pattern, indicates that there was significant selling during the day, but buyers were able to push the price back up.
Traders can use candlestick patterns to identify major support and resistance levels, as well as to recognize market sentiment and the balance between buying and selling pressures. While candlesticks offer visual and analytical advantages, they are best used alongside other technical tools to confirm overall trends.
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Viewing candlestick charts
Candlestick charts have become the preferred chart form for many traders using technical analysis. Here is a step-by-step guide to viewing candlestick charts on the thinkorswim® platform from TD Ameritrade:
Step 1: Symbol Selector and Other Header Controls
To begin using the Charts interface, specify the symbol for which the price plot will be displayed. To do this, type the symbol's name in the Symbol Selector box. Click the triangle icon to browse through the available categories and select any of the provided symbols.
Step 2: View the Price Plot
Once you select a symbol, you will see its price plot on the main subgraph. By default, the 1-year 1-day time frame is used, displaying one year's worth of data with candles aggregated on a daily basis. You can also choose a custom time frame for your chart, set for a specific range of dates, and set aggregation periods and chart time frames.
Step 3: View the Candlestick Chart
By default, the chart style is a candlestick chart. You can view the candlestick chart by selecting the Charts tab and then selecting Candlestick Patterns to see an alphabetized listing. The thinkorswim platform allows you to scan automatically for traditional candlestick patterns or create your own using the candlestick pattern editor.
Step 4: Understand the Candlestick Chart
Candlestick charts typically show up (green) and down (red) candles, as well as an unchanged doji candle. The shadows are the vertical lines above and below the candles' real bodies. Not all candles have shadows; the opening and/or closing prices may be the extremes of a given day's range.
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Technical analysis
Candlestick charts have become the preferred chart form for many traders using technical analysis. The thinkorswim® platform from TD Ameritrade allows you to scan automatically for traditional candlestick patterns or create your own custom patterns using the candlestick pattern editor.
To get started, specify the symbol for which the price plot will be displayed. You can do this by typing the symbol's name in the Symbol Selector box and clicking the triangle icon to browse through the available categories. Once you select a symbol, you will see its price plot on the main subgraph. By default, the 1-year 1-day time frame is used, displaying one year's worth of data with candles aggregated on a daily basis.
Under the Charts tab, you can select Candlestick Patterns to see an alphabetized listing of over 50 candlestick studies. This will allow you to identify various bullish and bearish candlestick patterns to predict future market behaviour for both long and short-term investments.
The shadows on a candlestick chart are the vertical lines above and below the candles' real bodies. Not all candles have shadows; the opening and closing prices may be the extremes of a given day's range. Candles can be green (up) or red (down), and an unchanged candle is represented by a doji candle.
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Frequently asked questions
Candlestick charts offer a different way of looking at price charts than standard technical analysis and bar charts.
To create your candlestick pattern on TD Ameritrade's thinkorswim platform, go to Charts > Patterns > Select Patterns > Candlestick.
Dedicated swimmers fluent in the thinkScript language can create custom patterns and apply them to charts to identify any pattern combination.
