Understanding the Candlestick Chart

The candlestick chart is a type of bar chart used to show open, high, low and closing prices.

Founded by the Japanese many years ago the Candlestick is a type of bar chart used by many to display the price action of an instrument. Where the price is displayed on the vertical and the time on the horizontal axis. A candlestick will be based over a specified period of time and will depict the open, high, low and closing price of that period.

A graphical presentation of the Candlestick chart can be seen below;

Candlestick

Looking at the above we can see 3 Candlesticks; each candlestick is made up of a body which tell us where the period had opened and closed. We then have the upper and lower wicks which define the high and low of the period, the difference between the two wicks will be the range of the period covered. Filled candlesticks typically black or red tell us that the market had closed below the level it had opened. Hollow candlesticks, which are usually white or green tell us the market had closed above the level it had opened.

Candlesticks are praised by professional/private investors and traders for their simplicity and great ability to illustrate the state of a market, i.e. whether there us a current bullish or bearish trend. More importantly through use of a candlestick chart we are able to identify candlestick patterns and take advantage of their predictive powers.

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