Candlestick chart definition
A candlestick chart is a type of chart used to analyze a market’s price in trading. Unlike bar charts, candlestick charts show the market’s high, low, open, and closing price within each period.
Its name comes from its candlestick-like appearance, with the body resembling the candle and the lines above and below resembling the wick. Although its origin can be traced back to 18th century Japan, the candlestick chart was adopted and popularized in the US much later.
Candlesticks have now become a staple of trading and are one of the most popular ways to view and track a market’s price. This is due to the extensive amount of information shown and the relative ease with which this can be interpreted. For day traders, candlestick charts are especially useful because of this abundance of information.
A bar chart is similar to a candlestick chart as it shows the same information. There are some subtle differences, however, one being the bodies in bar charts are thinner than in candlestick charts.
What do candlesticks mean?
A candlestick is a simple bar that shows the open and close price, as well as the high and low over the period selected.
The candlestick shows the following information:
- Open price
- Close price
- High price for the period
- Low price for the period
Another significant aspect of candlesticks is the color of the bar. White or green symbolizes the price has closed higher, black or red shows the price has closed lower. If the price of the market has closed lower, the close price will be the bottom of the bar and the open price the top.
This helps traders to quickly and easily identify price trends. If a chart shows 20 consecutive red candlesticks, it’s clear that the market is experiencing a heavy downward trend.
The shadow part of the candlestick is a good indicator of volatility in the period. If the upper shadow is significantly higher than the market open and the lower wick is significantly lower, the market has experienced a wide price range for the period shown.
Learn more about how to read candlestick charts.