Candlestick Trading Blog

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Introduction to Candlestick Stock Charts

Candlestick stock charts are used when trading stocks, forex, commodities, or in options trading. The candlestick chart is a combination of a type of bar chart and a line chart that is used to describe price movements of equity over time. These stock charts are used in technical analysis and are most often used by short term traders. They are considered by most traders to be more visually appealing and easier to use than other types of charts because you can quickly see the relationship between the open and close in addition to the high and low.

Candlestick stock charts are composed of a body and a shadow. The body is either black (or red) or white (or green), and it depicts the opening and closing of trades. The body is white or green if the stock closed higher than the open, and it is black or red if the stock closed lower than the open. The opening price is at the bottom of white bodies with the closing at the top, and vice versa for the black bodies. When analyzing candlestick chart formations, the shadows look like long thin lines that are above and below the body and they represent the high and low range. They are also referred to as wicks and tails. The top of the upper shadow represents the high and the bottom of the lower shadow represents the low. Keep in mind that you don't necessarily have to have either a body or a wick when reading candlestick stock charts! You will learn more about this when you start to study the actual candlestick chart patterns themselves. Additionally when studying candlestick charts, you will learn that you must have data that shows the open, high, and the low and close values for each time period that you want displayed.

Once you begin to learn about the different candlestick patterns utilized when reading candlestick stock charts, you will learn more about the body and the shadows. Typically the longer the body is, the more intense the buying and selling pressure. On the other hand, when the candlestick body is shorter, this indicates very little price movement and signifies consolidation. Additionally, when a candlestick has a short shadow, this means that most of the trading action was confined to the open and close whereas a long shadow means that trading expanded well past the open and the close. Basically, when candlestick trading, the upper shadows represent the high for a session and conversely, the lower shadows represent the low for a session.

Continue your candlestick analysis education and learn how to read candlestick charts in order to identify patterns such as the hammer candlestick, the doji candlestick, the dragonfly and the gravestone candlestick.  They are fairly easy to learn and will lead you to better investing in the stock market.