A:

Candlestick charts have been used in Western trading for many years and are a very popular method of plotting the price action of a given security over time. A typical candlestick chart is composed of a series of bars, known as candles, which vary in height and color. As you can see from the figure below, the color of each candle depends on the price action of the security for the given day. An unfilled candle, shown on the left, is created when the opening price is lower than the security's closing price. Remember that each bar can represent a minute, day, week, or even month, but the chosen time frame does not influence the color of the candle because a hollow bar will always be created when the close is higher than the open. This type of candle shows that buyers were in control of the security because the price was able to rise over the period, but this does not provide enough information to predict what will happen next.

candlestick.gif

A filled bar, usually red, is created when a security's closing price is below the price at which it opened. This bar shows that the asset traded downward for the period and that the bears are in control. Any color can be chosen to create any candlestick, but regardless of the color used to outline an unfilled bar, it is always used to represent a period where the price rose. In the figure above, we chose blue. Conversely, the color of the filled bar is used to illustrate periods where the price declined.

For more on this technique, see The Art of Candlestick Charting.

RELATED FAQS

  1. What assumptions are made when conducting a t-test?

    Learn what a t-test is, and discover the five standard assumptions that are made regarding the validity of sampling and data ...
  2. How are double exponential moving averages applied in technical analysis?

    Learn more about double exponential moving averages (DEMAS), and find out how traders commonly use DEMAs in technical analysis ...
  3. How do you know where on the oscillator you should make a purchase or sale?

    Learn more about oscillator indicators, technical momentum measures that are used by traders to predict potential market ...
  4. What are the alert zones in a Fibonacci retracement?

    Discover more about the Fibonacci number sequence, and specifically about the key Fibonacci retracement alert levels most ...
RELATED TERMS
  1. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  2. Indicator

    Indicators are statistics used to measure current conditions ...
  3. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  4. Forex Spread Betting

    A category of spread betting that involves taking a bet on the ...
  5. Mass Index

    A form of technical analysis that looks at the range between ...
  6. Money Flow Index - MFI

    A momentum indicator that uses a stock’s price and volume to ...

You May Also Like

Related Articles
  1. Chart Advisor

    ChartAdvisor for July 30 2015

  2. Trading Strategies

    Microsoft's Game of Catch-Up With The ...

  3. Charts & Patterns

    Avoid The Perfection Trap In Trading

  4. Trading Strategies

    Adjust Market Strategies To Elevated ...

  5. Chart Advisor

    Four Great Stocks for Day Traders

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!