Candlestick Charts – A Comprehensive Overview

Candlestick charts are an important tool for traders who are looking to monitor and analyze price movements of different financial instruments. Also known as OHLC (open, high, low and close) charts, these charts serve as graphical representations of the open and close prices of a security, along with the highs and lows of the day. They are one of the most widely used visual charting techniques, used to present price information in easy-to-understand visuals.

Candlestick charts were first used in the early 18th century by Japanese rice traders, to track changes in the price of rice over time. They were originally created using precise brush strokes on rice paper, with each line representing a different set of prices. Over the years, candlestick charts themselves have evolved and adapted with changing technology, but they continue to be a popular tool among traders today.

At their core, candlestick charts offer visual insight into the performance of different financial instruments over a given period of time. The main element of the chart is the “candlestick”, which is composed of a “real body” and two “shadows”. The real body (also known as the “body” or “wick”) is a rectangle formed by the open and close prices of the security during the time period in question. The high and low prices are indicated by the “upper” and “lower” shadows, which extend from the real body.

The color of the real body of the candlestick helps traders to quickly identify the current trend of the security. If the close is higher than the open price of the security, then the candlestick is green, and the security is in an uptrend. Alternatively, if the close is lower than the open price of the security, then the candlestick is red, and the security is in a downtrend.

Aside from providing an overall picture of price movement during a given period of time, Candlestick charts can also be used by traders to identify various chart patterns, such as “bullish” and “bearish engulfing” patterns. These patterns occur when the real body of the security engulfs the real body of the previous day’s candlestick and provide insight into potential future changes in the security’s price direction.

Overall, candlestick charts are a powerful visual tool that can provide traders with insight into the way a financial instrument is likely to perform at a given time. They are a popular choice among investors, and their remarkable ability to track price movements over time make them an indispensable tool for investors looking to improve their trading strategies.