What is a Candlestick Chart?

What is a Candlestick Chart: A type of chart visualization that represents price movement over time for a stock, ETF, or other market/instrument. Originated in Japan, candlestick charts have become the most commonly used chart type for financial technical analysis.

Category: Type of price chart

How is a Candlestick Chart Used: Candlestick charts are used by financial traders, investors, and technical analysts to view the movements of market prices over time. Typically, chart indicators and drawings are overlaid on a candlestick chart to help analyze trends and patterns of price movement. Candlestick charts are often used to identify trends and help make decisions on trade entries and exits. There are a plethora of well-defined candlestick patterns that help identify the dynamics of market price action, including the battle between bullish and bearish traders.

What Does a Candlestick Chart Consist of: Candlestick charts contain all of the information found in traditional bar charts, including the four essential pieces of price information within in a given time period – the open price, high price, low price, and close price. However, candlesticks represent those prices in a different way than bar charts that some find easier to use and more helpful than the typical OHLC bar chart.

Each candlestick represents a concrete time period. For example, a daily candlestick chart will have each candle representing one trading day of price movement, with the open, high, low, and close of the candle visually depicted as described below:

  • A candlesticks has a “body” and “wicks” (also called “shadows”).
  • The high price of the candle is the very top of the candle, whether it is the top of the upper wick or the top of the body (if there is no upper wick).
  • The low price of the candle is the very bottom of the candle, whether it is the bottom of the lower wick or the bottom of the body (if there is no lower wick).
  • The open and close prices of the candle are determined by the color of the body. A bullish candle closed higher than it opened and is typically either white or green. If so, the candle’s open is the bottom of the body and the close is the top of the body. A bearish candle closed lower than it opened and is typically either black or red. If so, the candle’s open is the top of the body and the close is the bottom of the body.
  • The following is a quick diagram illustrating these points:
Candlestick

What Does a Candlestick Chart Look Like:

Candlestick Chart
Candlestick Chart – Source: TheTechnicals.com and TradingView

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