Candles Chart 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 colourized 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’.
How Candle Chart is formed?
In a candlestick chart, the candles 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 green (bullish), 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 red (bearish), with the top of the rectangle representing opening price and bottom of the rectangle representing closing price.
In a black candle, the price after opening goes up for a while before dropping down. This price movement is represented by the upper shadow or upper wick. The price drops down much below before it rises a bit and closes. This price movement is represented by the lower shadow or lower wick.
In a white candle, the price after opening comes down a bit before shooting up. This price movement is represented by the lower shadow or lower wick. The price shoots up much higher before it falls a bit and closes. This price movement is represented by the upper shadow or upper wick.