How to Read Candlesticks for Investment Price Charting

In technical analysis for investment trading, candlestick charting displays the price bar in a graphically different way from standard bars. Candlesticks do many other things, as well, such as

  • They’re easy to use and simple to interpret. Plus you can use candlesticks on any chart, with any other indicators, just like standard bars.

  • The names of candlesticks and candlestick patterns contain the seeds of interpretation and help you to remember what the pattern means. Because candlestick bar interpretations are widely known, other participants in the market respond in a specific way to a specific pattern.

  • They excel in identifying strategic market turning points — reversals from an uptrend to a downtrend or a downtrend to an uptrend.

The open and the close in the following figure mark the top and bottom of a box, named the real body. A thin vertical line at the top and bottom of the real body, named the shadow, shows the high and the low.

The real body encompasses the range between the open and the close. The color of the real body tells you how the daily struggle between the bulls and the bears played out:

  • White real body: The close is higher than the open. A white body is bullish, and the longer the body, the more bullish it is. A long candlestick indicates that the close was far above the open, implying aggressive buying. In the daily battle of bulls and bears, the bulls won.

  • Black real body: The close is lower than the open. A black body is bearish, and the longer the body, the more bearish it is. A long black candlestick indicates a preponderance of sellers throughout the session. In the daily battle of bulls and bears, the bears won.

The two candlestick bars in the figure show the identical open and close, but coloring one of them black creates the optical illusion that it is bigger. That black bar demands your attention, which is one reason candlestick charting is appealing — and effective.

The candlestick form emphasizes the open and the close.
The candlestick form emphasizes the open and the close.
blog comments powered by Disqus
Advertisement

Inside Dummies.com

Dummies.com Sweepstakes

Win $500. Easy.