Candle Chart and Candlesticks
What are Candle Charts?
They are stock charts used in charting and study of chart patterns in technical analysis. Also called as Candlesticks or Candlestick charts, they 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. Their pictorial presentation is 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 Japanese Candlesticks
How Candle Chart is formed?
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In a candle chart candlesticks consists of a 'real body' made of a rectangle and two 'shadows' also called as wicks or tails, one above and one below the real body. The highest point of the upper shadow represents the highest traded price for that time period. The lowest point of the lower shadow represents the lowest traded price for that time period. |
The body represents the opening and closing prices. If the stock closes higher than the opening, the body is white or unfilled, with the bottom of the rectangle representing opening price and top of the rectangle representing closing price.
If the stock closes lower than the opening, the body is black or filled, with the top of the rectangle representing opening price and bottom of the rectangle representing closing price.
If the open is more close to the high then there is more chances that the price has moved up first before falling down. If the open is more close to the low then there is more chances that the price has moved down first before rallying up.
A candlestick need not have either the body or the wick or both.
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Compare the white and black candlesticks with up day bar and down day bar. By clearly understanding the concept, you can mentally view candles, even when you have only bar charts. Most of the modern candle charts displayed digitally on a computer, are color coded to highlight the price movements in a better way. The black candle is made red or orange and white candle is made green or blue. |
Study the charts given below.
Compare this candle chart with the bar chart given below. They both belong to the same stock and same time period.
Compare the above charts. They both belong to the same stock and same time period.
In a candle chart candlestick patterns are unique. They give us hints about the immediate future of the stock.
- They may be
- Simple Candlestick Patterns or
- Complex Candlestick Patterns
What are Simple Candlestick Patterns?
In a candle chart there are many simple candlestick patterns used in stock analysis. They are formed by a single candlestick. Though they are single, the information they give is very valuable.
Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
- White Candlestick
White Candles are bullish lines in candlestick and candlevolume charts. They signify that the closing price is higher than opening price for that time period. - Black Candlestick
Black Candles or black candlesticks are bearish lines in candlestick and candlevolume charts. They signify that the closing price is lower than opening price for that time period. - Long Lower Shadow
Long lower shadow of a candlestick indicates that the bears are loosing power and bulls are gaining power in that time period. - Long Upper Shadow
Long upper shadow of a candlestick indicates that the bulls are loosing power and bears are gaining power in that time period. - Hammer
A Candlestick Hammer is a reversal candle pattern with long lower shadow and no upper wick. They are bullish in nature. - Inverted Hammer
Inverted Hammer is a bullish reversal candlestick pattern. They occur at the bottom of a down trend. It is so named because a Candlestick Hammer, which is also a bullish reversal pattern is placed upside down. - Shooting star
Shooting Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend. - Hanging Man
A Hanging Man candlestick is a reversal candle pattern with long lower shadow and no upper wick. They are bearish in nature. - Spinning Top
Spinning Top candlestick is a candle pattern with small real body. They represent the areas of uncertainty. - Doji
Doji candlestick is a candle pattern with out a real body. They represent the areas of uncertainty. - Dragonfly Doji
Dragonfly Doji candlestick is a candle pattern with out a real body and upper shadow. They represent the areas of uncertainty. - Gravestone Doji
Gravestone Doji candlestick is a candle pattern with out a real body and lower shadow. They represent the areas of uncertainty. - Marubozu White
Marubozu White candlestick is a white candlestick with out shadows. They represent strong bullish trend in the market. - Marubozu Black
Marubozu Black candlestick is a black candlestick with out shadows. They represent strong bearish trend in the market.
What are Complex Candlestick Patterns?
In addition to the rather simple patterns listed above, there are more complex patterns which have been identified in a candle chart. They are formed by more than one candlestick.
Some of them are listed below. You may click on the name of each pattern listed below to learn and understand more about them.
Dark cloud cover is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Piercing Pattern is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bullish Engulfing Pattern is a major bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Bearish Engulfing Pattern is a major bearish reversal candlesticks pattern. They occur at the top of an up trend.
Morning Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Evening Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Morning Doji Star is a bullish reversal candlesticks pattern. They occur at the bottom of a down trend.
Evening Doji Star is a bearish reversal candlesticks pattern. They occur at the top of an up trend.
Three White Soldiers is a candlesticks pattern formed by a group of three white candles, which shows the strength of the advancing market.
Three Black Crows is a candlesticks pattern formed by a group of three black candles, which shows the strength of the declining market.
Harami is a candlesticks pattern, which shows the indecision of the market. In Japanese language, it means, pregnant. It is made of two candles, one containing the other.
Gaps are continuation chart pattern, formed by an unfilled space between two trading session. Gaps are referred as Tasuki, meaning window in candlestick charting.
Island Formation is a reversal chart pattern, formed by price action in a group of multiple time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
Abandoned Baby is a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.
Candlevolume Charts
These are hybrid created by combining the features of Equivolume charts and Candlestick charts. The effect of high volume is pictorially emphasized.
Equivolume charts are not really candlestick charts, because they contain only bodies. They do not contain wicks. Open and high prices are not indicated on the symbols. Click here to learn more.
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