Candlestick charts condense price action into visually informative bars: each candle shows open, high, low and close for a chosen timeframe. The body (open to close) indicates directional conviction — green/white or hollow for bullish closes, red/black or filled for bearish closes. Wicks (shadows) show rejection or acceptance of price at extremes. Candle size reflects range: long bodies and long wicks signal higher intraperiod activity, while small candles indicate indecision.

For NAS100 (a high-volatility tech-weighted index), reading these elements helps you spot momentum, reversals and consolidation. Always consider timeframe: 5-minute and 15-minute charts reveal short-term volatility; hourly and daily charts show structural trends and larger volatility regimes.

Steps

1. Identify the market conditions

   Determine trend versus range. Use higher timeframes first (daily/4H) to define the prevailing trend: higher highs/lows = uptrend, lower highs/lows = downtrend, sideways structure = range. Measure recent volatility context by noting average candle size and ATR levels relative to historical averages. Check market session (US open, pre/post-market) — NAS100 often spikes at US economic releases and earnings windows.

2. Look for significant candlestick patterns

   Scan for patterns that matter in context: engulfing candles, pin bars (long wick rejection), inside bars (consolidation), and consecutive strong directional candles. On NAS100, a bullish engulfing at a trend support on the daily chart carries more weight than the same pattern on a 5-minute chart. Combine pattern size with preceding structure: a pin bar at a key level or a breakout candle with high volume is more reliable.

3. Measure volatility using the Average True Range (ATR)

   Use ATR (commonly 14 periods) to gauge average range. ATR gives absolute range units — useful for stop placement and position sizing. On NAS100, compare current ATR to a lookback average (e.g., 50 periods) to see if volatility is expanding or contracting. Use ATR to set stop distance (e.g., 1.5–3× ATR) and to size positions so that a fixed account-risk percentage corresponds to that stop distance.

4. Confirm signals with other indicators

   Don’t rely solely on a candlestick. Confirm with momentum and trend filters: moving averages (50/200) to confirm trend direction, RSI (14) for momentum extremes, MACD for momentum shifts, and volume or on-balance volume for conviction. For NAS100, check correlation with major tech earnings or macro announcements. If a candlestick pattern aligns with moving average support and rising volume and RSI divergence, the signal strength increases.

5. Execute trades based on your analysis

   Plan entry, stop, and target before trading. Entry: wait for candle close beyond confirmation (breakout close or validated reversal). Stop: place beyond structure or at a multiple of ATR. Target: use previous structure, measured moves, or risk-reward ratios (aim for at least 1.5–2× risk). Size the position so that risk per trade fits your plan (e.g., 1% of capital). For NAS100’s volatility, prefer limit entries at logical levels and avoid chasing stops during release-driven spikes.

Common mistakes

1. Ignoring fundamental news that affects volatility
2. Misinterpreting candlestick patterns
3. Overreacting to short-term fluctuations

Briefly on each: news (jobs, Fed, big tech earnings) can blow through technical levels — always check the economic calendar. Misinterpreting patterns happens when traders ignore timeframe and context; a pin bar inside a strong trend may be continuation, not reversal. Overreacting to short-term swings often leads to poor entries and stop-outs; use ATR and higher-timeframe bias to filter noise.

Checklist

1. Confirm market conditions
2. Review recent volatility
3. Identify recent candlestick patterns
4. Analyze ATR levels
5. Prepare trade execution strategy

Use this process each session: start top-down (daily to intraday), note ATR behavior, mark key candlestick patterns and levels, confirm with indicators, and execute with predefined risk. Consistent application of candlestick reading plus ATR-based sizing and stops helps manage NAS100’s volatility without reacting emotionally to every candle.