What is a candlestick chart?
Before I answer that we need to understand that candlestick charting isn’t the only method of representing a chart on the screen. When it comes to alternatives to the candlestick chart the other ones include:
Line charts: Simple and used for short-term decisions but are quite limited in the data they represent.
Bar Charts: Also know as open-high-low-close (OHLC) charts are much more useful than line charts and the most common but are not as versatile as candlestick charts.
Point and Figure Charts: Tried and tested charts and good for recognising support and resistance levels but are a lot less dynamic than candlestick charts.
So returning to the question at the top of the page what is a candlestick chart and what does it consist of? The basic components of a candlestick chart is the candlestick itself. There are four pieces of data that create your basic candlestick:
Opening Price: The price at which the security opens at a given time period. The opening price may be at the bottom edge or the top edge of the candlestick’s candle and represents whether a security is behaving bullishly or bearishly.
High Price: The top of the candlesticks wick represents the highest price the security reaches in given period. If the price of the security falls from the start of the day then there won’t be any wick above the candle.
Low Price: The bottom of the candlesticks wick represents the lowest price the security reaches in a given period. If the price of the security rises from the start of the day there won’t be any wick below the candle.
Closing Price: The price at which the security closes at a given time period. The closing price may be at the top edge or the bottom edge of the candlestick’s candle and represents whether a security is behaving bullishly or bearishly.
Take a look at figure 1
Figure 1
You can tell immediately the red candle (can also be black) is a bearish candle and the green candle (can also be white) is a bullish candle. In this case the red candle is larger than the green candle and indicates that for the same period of time there was more selling of the security than there were people buying.