Basics of Candlestick Charts in Technical Analysis

Part of the Technical Analysis For Dummies Cheat Sheet

Candlestick charting emphasizes the opening and closing prices of a stock security for a given day. Many candlesticks are simple to use and interpret, making it easier for a beginner to figure out bar analysis — and for experienced traders to achieve new insights.

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Become familiar with candlestick bar notation:

  • Open: The opening price.

  • High: The high of the day.

  • Low: The low of the day.

  • Close: The closing price.

  • Real body: The range between the open and close.

    The color of the real body shows how the struggle between buyers and sellers played out:

    • A white real body means the close is higher than the open. A white body is bullish (a buyer's market), and the longer the body, the more bullish it is. A long white candlestick indicates that the close was far above the open, implying aggressive buying.

    • A black real body means the close was lower than the open. A black body is bearish (a seller's market), and the longer the body, the more bearish it is. A tall black bar means the close was under the open and near the low, which may be hard to see on a regular bar but hard to miss in candlestick format; there was a preponderance of sellers throughout the session.

    What if the candlestick shows the open and close about the same? This configuration means you can't read supply and demand in the bar and should not trade the security on the basis of bar analysis.

  • Shadow: The thin vertical line at the top and bottom of the real body. Shows the high and low.

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