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Candle Chart and Candlesticks

Candle chart or simply candlesticks are stock charts used in charting and study of chart patterns in technical analysis. Candlesticks dramatically illustrate supply and demand concepts defined by classical technical analysis theories.

Candlestick patterns not only display the absolute values of the open, high, low, and closing price for a given period in a format similar to the modern day, bar chart. But they also indicate trend continuation and trend reversal more clearly and more precisely. Candle chart are also visually easier to look at, and can be colorized for even better definition.

Candlestick charting is an ancient Japanese method of technical analysis, used to trade rice in 1600's and rice contracts from 1710 onwards. So candlesticks are also called 'Japanese Candlesticks' or simply 'Japanese Candle'.

Click here to read little interesting history about candle charts.

Candlesticks consists of a 'real body' made of a rectangle and two 'shadows' (wicks or tails), one above and one below the real body. The tip of the shadows represents highest and lowest traded prices. Where as the body represents the opening and closing prices. If the stock closes higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black or filled, with the opening price at the top and the closing price at the bottom.

A candlestick need not have either a body or a wick or both.

candleatick Compare the white and black candlesticks with up and down bars. By clearly understanding the concept, you can mentally view candles, even when you have only bar charts.

To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colors such as red (for a lower closing) and blue or green (for a higher closing).

Study the charts given below.

candle chart

bar chart

Compare the above charts. They both belong to the same stock and same time period.

Simple Candlestick Patterns

White Candlestick
Black Candlestick

Complex Patterns

In addition to the rather simple patterns listed above, there are more complex patterns which have been identified since the charting method's inception. They are formed by more than one candlestick.

Dark-cloud cover

Piercing Pattern

Bullish Engulfing pattern

Bearish Engulfing pattern