Candlestick Chart
A candlestick is a type of price chart used in technical analysis. It displays the high, low, open, and closing prices of a security for a specific period. The candlestick originated from Japanese rice merchants and traders hundreds of years before becoming popularized in the United States. It was used to track market prices and daily momentum.
The wide part of the candlestick is called the "real body." It tells investors whether the closing price is higher or lower than the opening price. It appears as black/red if the stock closed lower or white/green if the stock closed higher.
Definition: A candlestick chart is a type of price chart used in technical analysis. It displays the high, low, open, and close prices of a security for a specific period. Originating from Japanese rice merchants and traders, candlestick charts were used centuries before they were introduced to the United States. They are used to track market prices and daily momentum.
The wide part of the candlestick is called the 'body.' It indicates whether the closing price was higher or lower than the opening price. If the stock closed lower than it opened, the body is black/red; if the stock closed higher than it opened, the body is white/green.
Origin: The history of candlestick charts dates back to 18th century Japan, where rice merchants and traders used these charts to record and predict rice price fluctuations. The earliest candlestick charts were invented by Japanese merchant Munehisa Homma, who is considered the founder of candlestick charting techniques. Candlestick charts were introduced to the West in the 1990s and quickly became a crucial tool in technical analysis.
Categories and Characteristics: Candlestick charts can be categorized into several types, mainly including single candlestick patterns, double candlestick patterns, and multiple candlestick patterns. Single candlestick patterns like 'Hammer' and 'Inverted Hammer' can indicate market reversal signals; double candlestick patterns like 'Engulfing' and 'Dark Cloud Cover' can provide stronger trend reversal signals; multiple candlestick patterns like 'Three Black Crows' and 'Three White Soldiers' can indicate more complex market trends.
Specific Cases: 1. On a particular trading day, a stock opens at $100, reaches a high of $110, a low of $95, and closes at $105. The candlestick body is green, indicating a bullish market as the closing price is higher than the opening price. 2. On another trading day, a stock opens at $200, reaches a high of $210, a low of $190, and closes at $195. The candlestick body is red, indicating a bearish market as the closing price is lower than the opening price.
Common Questions: 1. How is a candlestick chart different from a bar chart? A candlestick chart not only shows the four key price points (open, close, high, low) but also provides visual cues of market sentiment through color and shape, whereas a bar chart primarily shows the four key price points. 2. How to interpret the wicks of a candlestick? The wicks represent the price range within a specific period. The upper wick shows the difference between the highest price and the open or close price, while the lower wick shows the difference between the lowest price and the open or close price.
