what are the CANDLESTICK CHARTS?
A candlestick chart is simply a chart composed of one candle or multiple candlesticks. It is used by traders to understand trading patterns. Candlestick charts are more visually appealing and easier to interpret.
The body of the candle is the hollow or filled portion of the candlestick. The long and thin lines above and below the body indicate the high and low values for a specified period. They are called tails or wicks. The top of the upper indicates the highest value and bottom of the lower indicates the lowest value.
If the stock closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.
INTERPRETING A CANDLE ON A CANDLESTICK CHART
Each candlestick provides a simple and visually appealing picture of price action. From a candlestick, a trader can simply interpret open and close as well as the high and low values. There are three specific points open, close and wicks or tails are used to represent the price action.
Each candle represents the price movement for a certain period that you can select. If you are looking at a daily chart each candle will display the open, close, upper and lower tail of that day.
Open price: The open price indicates the price at which trading has started during the formation of the new candle. If the price trends to move upwards the candle will turn green. If the price goes down, the candle will turn red.
High Price: The top of the upper wick or tail indicates the highest price traded during the period which you are looking at. If there is no upper wick or tail it means that the open price is the highest price of that period.
Low Price: The bottom of the tail indicates the lowest price traded during the period. If there is no lower wick or tail, then the lowest price traded is the same as the close price.
Close Price: The close price is the last price traded during the period of the candle formation. If the close price is below the open price the candle will be red in colour.
Direction: we can understand the direction of the price from the colour of the candlesticks. If the price is moving upwards then the candle will be green. If the price is going down then the candle will be red.
Range: Range of the candlestick is the difference between the highest and lowest price of a candle. You can calculate this by taking the price at the top of the upper wick and subtracting it from the price at the bottom of the lower wick. You can calculate the range by taking the price at the top of the upper wick and subtracting it from the price at the bottom of the lower wick.