What is Candle Sticks?

DEFINITION:

Candlestick charts prepare the price information for traders to understand price bars for technical analysis.

For a specific period, this price chart shows high, low, open, close prices of a security.

This chart contains individual candles used by traders to understand price actions.

To indicate buy or sale entries in the market candlesticks can form individual formation. The period for each candle chosen by the trader according to the time frame.

The relationship between the days open, high, low, and close determines the look of the daily candlestick.

Candlestick charts originated in the 17th century in Japan by a Japanese rice trader Munehisa Homma. The market was strongly influenced by the emotions of traders was his observation.

Candlesticks show emotion by a visible portrayal of price moves with different colors. To help the forecast of the short-term direction of the price, traders use candlesticks based on regularly occurring patterns.

Important factors in candlestick:

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  • Open Price:

The first price traded during the formation of the new candle is known as the Open price.

If the price starts to go up, candles turn green or blue. If the price reduces, candles turn red or black. (candle’s colour depends on the chart setting. )

  • Close Price:

The last price traded during the formation of the new candle is the close price.

When the close price is below the open price the candle turns red by default in most charting packages.

If the price is above the open price candle will turn green/ blue. (The candle’s colour depends on the chart setting.)

  • Body:

The ‘body’ is a hollow or filled portion of a candle which represents the open-to-close range. Also known as ‘Real body’. When the close price is lower than the open price the real body is filled in or black. When the real body is empty, which means the close price is higher than the open price.

Real bodies can be long or short and black or white.

  •   Shadow:

Just above & below the real body is the shadow or ‘Wicks’ or ‘Tails’. The shadows show the high and low prices of that day’s trading.

Shadow shows extremes in prices for a specific chart period.

As they are visually thinner than the body of a candlestick we can identify them quickly.

It is very helpful for traders to keep an eye on the market & away from the static high prices.

When the upper shadow on a down candle is short, it indicates that the open that day was near the high of the day. A short upper shadow on an up day dictates that the close was near the high. Shadows can be long or short.

  •   High Price:

The top of the upper shadow indicates the highest price traded during the period. If there is no upper shadow then the open price or close price is the highest price traded.

  • Low Price:

The lower price traded is either the lowest price of the lower shadow. If there is no lower price then the lowest price traded is the same as the close price or open price in the bullish candle.

Single, unique candlesticks form patterns that traders can use to recognize major support. The candlestick patterns tell us about opportunities in the market. Some give us insights about selling pressure & the balance between buying, Some identify market Uncertainty. Before you start trading, knowledge about the basics of candlestick patterns is very necessary.

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