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Monday, September 17, 2007

How To Read Candlestick Chart – The Basic

Candlestick charts have been widely used & popular among traders.
I personally also prefer candlestick charts to bar charts, although both charts contain the same information: Opening Price, Closing Price, High Price & Low Price, over a given time interval.

In a stock price chart, you can select the time interval for each candle: weekly, daily, hourly, or even minutes.
Each bar / candle represents the range of price movement over the selected time interval.



The hollow (white) or filled (red) portion of the candlestick is called Body, which represents the Opening & the Closing Price.
The long thin lines above and below the body is known as Shadows / Wicks / Tails, which represent the High & the Low price.

White Candle means Bullish because the stock price increases during the period. The stock closes higher than its opening price (i.e. the stock opens at the bottom of the body and closes at the top of the body).
In some charts, the color of Bullish candle is green instead of white.

Red Candle means Bearish because the stock price decreases during the period. The stock closes lower than its opening price (i.e. the stock opens at the top of the body and closes at the bottom of the body).
In some charts, the color of the Bearish candle is black instead of red.

Normally, the color combinations to represent Bullish vs. Bearish candles are White vs. Red, White vs. Black, Green vs. Red.

Compared to traditional bar charts, many traders find that candlestick chart is easier to see to interpret the price action.
For example:
White candle (i.e. Closing price is higher than Opening price) indicates buying pressure, or in other words, buyers are in control over sellers.

Red candle (i.e. Closing price is lower than Opening price) indicates selling pressure, or in other words, sellers are in control over buyers.

With this article, I’ll start a series of posts to discuss some common & important Candlestick formation & patterns. I’d like to make them straightforward yet comprehensive and easy to understand. Hope it can be useful for the readers.

To read further about each of major Candlestick Patterns, go to: Learning Candlestick Charts.

Related Posts:
* FREE Trading Videos From World Class Trading Experts You Should Not Miss
* Learning Charts Patterns
* Options Trading Basic – Part 2
* Understanding Implied Volatility (IV)
* Option Greeks

6 comments:

Brandon said...

Great post! Candlestick charting is a concept we could all learn a little more about.

OPTIONS TRADING BEGINNER said...

Thanks Brandon... :)

Tony Chai said...

Hi OTB :

great article again.

just wish to add that candlestick chart should be read together with trading volume to have a even better understanding of the stock price action.

Yours Truly,

Tony Chai
My Options Trading Blog

OPTIONS TRADING BEGINNER said...

Hi Tony,
Yes, you're absolutely right.
Thanks for the input.

Cheers

newbie said...

thanks for good articles!

rash said...

Superb Article,Easy to understand...

Thanku for such a nice article:)