Candlesticks, also known as candlestick charts, are a category of price visualizations that provide data on multiple facets of a given security. Technical stock analysts utilize the majority of these charts to determine when to purchase or sell a given stock. The notion of candlesticks originated over four millennia ago, when Japanese rice merchants employed these visual representations to assess the progress of their trade.
The candlestick chart of a given security will encompass not only the opening and closing prices but also the greatest and lowest price points of that specific stock. The majority of this data is compiled from intraday trading.
In accordance with the demand and price of a particular stock, candlestick shapes can vary considerably. Additionally, market conditions, particularly bullish or adverse conditions, have a substantial effect on the form of a candlestick.
A significant advantage of technical traders employing candlestick chart analysis is the chart’s capacity to furnish insights into market sentiments. This knowledge empowers traders to enter and exit positions at opportune moments.
Define candlesticks.
By displaying the price movement of a specific stock throughout the course of a day’s trading, candlesticks are charts. As stated previously, it provides the opening and closing prices, as well as the intraday high and low for a specific stock.
The price movements of securities, derivatives, and currencies can be predicted with a reasonable degree of assurance using such charts. Due to their striking resemblance to Japanese candlesticks, which have a broad body and wicks at both extremities, they derive their name.
Interpreting a Candlestick
The following elements constitute almost all types of candlesticks currently used.
- Open – It is the opening price of a stock when trading starts.
- High – Candlesticks can record price differences for varying periods. In this duration, the highest price set for that stock is reflected by a chart’s ‘upper shadow’. Note that if its opening price was also its highest price during trading, the ‘upper shadow’ would be absent.
- Low: It is the opposite of a stock’s upper price limit. The lowest price that a particular stock fetches during trading is its ‘lower shadow.’ Here too, if its opening price when trading hours start is also its lowest price point, this chart will be prepared sans a ‘lower shadow’.
- Range: Determining a stock’s range of price shifts is rather easy. Subtracting its lowest bid from its highest one during an intra-day operation will yield its range. Note that volatility of a stock is linked directly with its price range.
