STOCK TALK

Stock Talk: Candlestick Charts

Hope these resources help you understand how to read charts via Candlesticks.

Here are some resources that’ll help you get familiar with looking/reading Candlestick charts. It’s really helpful if you try to get familiar with Technical Analysis. 

Why Candlestick?

Traders use candlestick charts to track price movements of a certain stock or other securities. The “candlestick chart” originated from Japan back in the early 1900s. Its purpose is to show the prices of the open and close of a given timeframe in a rectangle shape.

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If your chart is set to a 1-day timeframe, each of your candlesticks shows the open and close of a single day. A green candlestick indicates that your close price is higher than your open price. A red candlestick indicates that your close price was lower than your open price. In the traditional Japanese candlestick chart, your previous close marks the beginning or open of the next candlestick. The tails (straight lines) that we see on the top and bottom of the candlestick are called wicks, an analogy to candlestick wicks. These mark the absolute lows and highs of that specific timeframe.

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The length of the body tells us the strength of the momentum of both seller and buyer.

  • When the buyers are stronger, they keep buying and the green body becomes longer.
  • When the sellers are stronger, they keep selling and the red body becomes longer.
  • When the body is short, it tells us that the momentum of selling and buying is almost equal, meaning no clear direction, or nobody is interested in playing the security

We can use the wicks of the candlestick as an indicator as well. A very long bottom wick means that the stock has been sold heavily but eventually returned to the level of the open. At the end, the bulls were stronger than the bears and kept price above the bottom wick. On the contrary, a very long upper wick means that the price was pushed to the open level and the bears were stronger than the bulls. According to statistics, a longer upper wick (than bottom wick) appears in uptrends and a longer bottom wick (than upper wick) appears in downtrends.

Price is likely to move towards the longer wicks. Of course, this explanation is not always true, so you must be careful when using this indicator. Looking at a single candlestick can only tell us so much, so if you combine 2 or 3 candlestick charts, there is way more information to be found.

Here are some images below to help you get familiar with recognizing signals with Candlestick charts.

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image_1

image

image0_1

bullish-pattern

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PDFs

Candlesticks_-_The_Basics_2000

Candlestick_Charts

Getting_Started_in_Candlestick_Charting_2008

 

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