What Is a Candlestick Chart?

A candlesti🐻ck chart is a type of financial diagram that technical analysts use to follow price trends. The candlestick shows key pieces of information: opening and closing prices and the high and low prices for a specific time frame.

The candlestick chart was developed by Japanese rice merchants centuries before it was adapted for use by stock traders in the U.S.

The Basics of a Candlestick

The wide part of the candlestick is called the "澳洲幸运5官方开奖结果体彩网:real body." It tells investors whether the closing price is higher or lower than the opening pri🅘ce. It appears as black/red if the stock closed lower or white/green if the stock closed higher.

The candlestick's shadows show the day's high and low and how they compare to the open and close. Its shape varies based on the relationship between the day's high, low, opening, and closing prices.

Candlesticks reflect the impact of investor sentiment on security prices, and they're used by 澳洲幸运5官方开奖结果体彩网:technical analysts to determine when to enter and exit trades. Candlestick charting is based on a techniq📖ue developed in Japan in the 1700s for tracking the price of rice. They're a suitable technique for trading any liquid financial asset, such as stocks, foreign exchange, and futures.

White/Green Candlesticks

Long 澳洲幸运5官方开奖结果体彩网:white/green candlesticks indicate that there's strong buying pressure. This typically indicates that price is bullish, butꦗ they should be looked at in the context of the market structure rather than individually.

A long white candlဣe is likely to have more significance if ♌it forms at a major price support level.

Black/Red Candlesticks

Long black/red candlesticks indicate that there's significant selling pressure. They suggest that the price is bearish.

Hammers and Hanging Men

The hammer is a common bullish candlestick reversal pattern that forms when the price moves substantially lower after the open and then rallies to close near the high. The equivalent 澳洲幸运5官方开奖结果体彩网:bearish candlestick is known as a hanging man.

These candlesticks have a similar appearance to a square lollipop and are often used by traders attempting ಞto🐼 select a top or bottom in a market.

Two-Day Candlestick Trading Patterns

Many short-term trading strategies are based on candlestick patterns.

The engulfing pattern suggests a potential trend reversal. The first candlestick has a small body that is completely engulfed by the second candlestick. It's referred to as a bullish engulfing pattern when it appears at the end of a downtrend and as a bearish engulfing pattern after an uptrend.

The harami is a reversal pattern where the second candlestick is entirely contained within the first and is 澳洲幸运5官方开奖结果体彩网:opposite in color. The 澳洲幸运5官方开奖结果体彩网:Harami Cross has a second candlestick in a related pattern that's a doji. The open and close are effectively equal.

Three-Day Candlestick Trading Patterns

An 澳洲幸运5官方开奖结果体彩网:evening star is a bear🌳ish reversal pattern in which the first candlestick continues the uptrend. The second candlestick gaps up and ha꧂s a narrow body. The third candlestick closes below the midpoint of the first candlestick.

A 澳洲幸运5官方开奖结果体彩网:morning star is a bullish reversal pattern where the first candlestick is long and black/red-bodied, followed by a 澳洲幸运5官方开奖结果体彩网:short candlestick that has gapped lower. It's completed by a long-bodied white/green candlestic💎k that closes above the midpoint of the first candlesticꦦk.

Explain Like I'm 5

A candlestick chart is a visual representation of how the price of an asset, such as a stock or currency, has moved over time. Each candlestick on the chart shows four pieces of information: (1) the opening p♛rice, (2) the closing price, (3) the highest price, and (4) the lowest price.

The colors and shapes of the canღdlesticks easily signal to traders if the price went up or down and by how much. Traders like using these charts because of the ease of use and the amount of detail they convey in a small space, allowing them to look for patterns, which guide their trading decisio♋ns.

How Will I Use This in Real Life?

If you're a trader, specifically a technical trader, candlestick charts can help you make decisions. They clearly convey how an asset's price has moved and how sustained that move is: whether just a spike, a gradual increase or decrease, or a sudden drop.

Knowing the ins and outs of these movements will prevent you from buying or selling at the wrong time, such as buying at the peak or selling at a temporary dip. These charts create patterns that you, as a trader, can follow to determine the correct entry and exit points. While they're not without flaws, they can assist you in making educated trading decisions.

The Bottom Line

Candlestick charts depict the open, closing, high, and low prices of a security over a designated time. The shape can shrink or enlarge depending on the rel✅ationship between these prices. The color of the wide part of the candlestick indicates whether the stock closed higher or lower than the previous period🏅.

As with all tra💝ding tools, you’ll want to be sure that you have a firm grasp of how a candlestick chart works before you invest money based on its interpretation and implications.