Candlestick charts have remained popular among traders due to the wide range of trading information they provide and their easy-to-read and interpret the design. This centuries-old charting technique originated in Japan's rice markets. The name of the style comes from the fact that a rectangle represents each time period with lines coming out of the top and bottom. This form is similar to a candlestick with a wick. The wick-like lines were referred to as "shadows" by the Japanese market watchers who used this style. Each candlestick on the chart represents the open, high, low, and close price for the time frame selected by the trader. For instance, if the time limit is set to five minutes, a new candlestick will be produced every five minutes. The open and close prices on an intraday chart like this one are for the beginning and end of the five-minute period, not the trading session. Candlesticks also display the current price as they form, as well as whether the price moved up or down over the time frame and the price range the asset covered during that period.
Price available to the public
Depending on whether the asset moves higher or lower during the five-minute period, the open price will be indicated by the top or bottom of the candlestick body. The open is represented by the bottom of the body, and the top represents the close if the price trends up and closes higher than it opened. The open of the candlestick (not including the wick) is represented as the top, and the close is represented as the bottom of the price trends down and closes lower than it opened. Green or white candles are commonly used to fill in candlesticks that close higher. Candlesticks that close lower are frequently filled in with black or red color.High Cost
The top of the shadow or tail above the body indicates the high price during the candlestick period. There would be no upper shadow if the open or close price were the highest.Low Cost
The bottom of the shadow or tail below the body indicates the low. There will be no lower shadow if the open or close price is the lowest.Price at the end
The close is the last price traded during the candlestick, which is indicated by the body's top (for a green or white candle) or bottom (for a red or black candle). As the price moves, the shape of the candle changes. The open remains constant, but the high and low prices change as the candle progresses. The color of a candlestick may also change as it grows. If the current price was above the open price but then dropped below it, it could go from green to red. When the candle's time period expires, the last price is the close price, the candle is closed, and a new candle begins to form.Price Movement
The color and positioning of the candlestick reveal the direction in which the price moved during the time frame of the candlestick. If the candlestick is green, the price closed higher than when it first opened, and this candle will be above and to the right of the previous one unless it is shorter and of a different color. If the candlestick is red, the price closed lower than when it first opened, and this candle will be below and to the right of the previous one unless it is shorter and of a different color.Price Points
The price range is defined as the distance between the top of the upper shadow and the bottom of the lower shadow during the candlestick's time frame. The range is determined by subtracting the low and high prices.Pattern Recognition
Opening a demo trading account or playing around with candlesticks on free web-based charting platforms are both good ways to practice reading candlestick charts. Set the chart type to candlestick and the time frame to one minute so you can see a lot of candlesticks. You can start looking for trading opportunities based on candlestick patterns like the three black crows and the abandoned baby once you understand what each one means.Most Commonly Asked Questions (FAQs)
What are the advantages of using a candlestick chart?
Candlestick charts make it simple for traders to follow the price movement of specific security over time. Traders can see where the security was at the open and close of the period, as well as the high and low points, and make trading decisions based on that information.What is the best way to read a candlestick chart?
After you've figured out what the basic elements of a candlestick chart mean, you can start looking for patterns. Different candle shapes and lengths indicate different trends, and any trader should be able to recognize these patterns.