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518 views3 pages

Candle 005 V 1

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tspworkinfo
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© © All Rights Reserved
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Candlestick chart

Scheme of a single candlestick chart. A candlestick as this one is usually shaded


red as the close is lower than the open. The Low and High caps are usually not
present but may be added to ease reading.

An hourly candlestick shown with order book depth on a currency exchange.


A candlestick chart (also called Japanese candlestick chart or K-line) is a style
of financial chart used to describe price movements of a security, derivative, or
currency.

While similar in appearance to a bar chart, each candlestick represents four


important pieces of information for that day: open and close in the thick body, and
high and low in the "candle wick". Being densely packed with information, it tends
to represent trading patterns over short periods of time, often a few days or a few
trading sessions.[citation needed]

Candlestick chart of EUR/USD currency pair on daily timeframe in MetaTrader 5


trading platform.
Candlestick charts are most often used in technical analysis of equity and currency
price patterns. They are used by traders to determine possible price movement based
on past patterns, and who use the opening price, closing price, high and low of
that time period.[citation needed] They are visually similar to box plots, though
box plots show different information.[1]
ts are thought to have been developed in the 18th century by Munehisa Homma, a
Japanese rice trader.[2] They were introduced to the Western world by Steve Nison
in his book Japanese Candlestick Charting Techniques, first published in 1991. They
are often used today in stock analysis along with other analytical tools such as
Fibonacci analysis.[3]

In Beyond Candlesticks,[4] Nison says:

However, based on my research, it is unlikely that Homma used candle charts. As


will be seen later, when I discuss the evolution of the candle charts, it was more
likely that candle charts were developed in the early part of the Meiji period in
Japan (in the late 1800s).

scription
The area between the open and the close is called the real body, price excursions
above and below the real body are shadows (also called wicks). Wicks illustrate the
highest and lowest traded prices of an asset during the time interval represented.
The body illustrates the opening and closing trades.

The price range is the distance between the top of the upper shadow and the bottom
of the lower shadow moved through during the time frame of the candlestick. The
range is calculated by subtracting the low price from the high price.

The fill or the color of the candle's body represent the price change during the
period. Normally, if the asset closed higher than it opened, the body is displayed
as hollow (or the green color is used), with the opening price at the bottom of the
body and the closing price at the top. Conversely, if the asset closed lower than
it opened, the body is displayed as filled (or the red color is used), with the
opening price at the top and the closing price at the bottom. Modern charting
software permits unrestricted customization of candle looks and colors, so the
actual look of rising or falling price candles may vary.
A version of a candlestick chart is a hollow candlestick chart, where both fill and
color are used to represent different price relationships:[5]

Solid candles show that the current close price is less than the current open
price.
Hollow candles show that the current close price is greater than the current open
price.
Red candles show that the current close price is less than the previous close
price.
Green candles show that the current close price is greater than the previous close
price.
A candlestick need not have either a body or a wick. Generally, the longer the body
of the candle, the more intense the trading.[3]

In trading, the trend of the candlestick chart is critical and often shown with
colors.
Candlesticks can also show the current price as they're forming, whether the price
moved up or down over the time phrase and the price range of the asset covered in
that time.

Rather than using the open, high, low, and close values for a given time interval,
candlesticks can also be constructed using the open, high, low, and close of a
specified volume range (for example, 1,000; 100,000; 1 million shares per
candlestick).[citation needed] In modern charting software, volume can be
incorporated into candlestick charts by increasing or decreasing candlesticks width
according to the relative volume for a given time period.[6]

Usage
Candlestick charts are a visual aid for decision making in stock, foreign exchange,
commodity, and option trading. By looking at a candlestick, one can identify an
asset's opening and closing prices, highs and lows, and overall range for a
specific time frame.[7] Candlestick charts serve as a cornerstone of technical
analysis. For example, when the bar is white and high relative to other time
periods, it means buyers are very bullish. The opposite is true when there is a
black bar.

A candlestick pattern is a particular sequence of candlesticks on a candlestick


chart, which is mainly used to identify trends.[citation needed]

Heikin-Ashi candlesticks
Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version
of candlesticks calculated in the following way:[citation needed]

Close = (real open + real high + real low + real close) / 4


Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2
High = max(real high, Heikin-Ashi open, Heikin-Ashi close)
Low = min(real low, Heikin-Ashi open, Heikin-Ashi close)
The body of a Heikin-Ashi candle does not always represent the actual open/close.
Unlike with regular candlesticks, a long wick shows more strength, whereas the same
period on a standard chart might show a long body with little or no wick.[citation
needed]

References

Wikimedia Commons has media related to Candlestick charts.


Patel, Ravi (1 January 2010). Guide To Technical Analysis & Candlesticks.
Buzzingstock Publishing House. ASIN B00GZMSEDM.
Gregory M., Morris (2006). Candlestick Charting Explained: Timeless Techniques for
Trading Stocks and Futures. McGraw-Hill. ISBN 9780071461542.
Nison, Steve (2001). Japanese Candlestick Charting Techniques (2nd ed.). Prentice
Hall Press. ISBN 9780735201811.
Nison, Steve (1994). Beyond Candlesticks: New Japanese Charting Techniques
Revealed. John Wiley & Sons. ISBN 9780471007203.
Mekhatria, Mustapha (2021-08-20). "How to Read Hollow Candlesticks". Highcharts.
Retrieved 2024-01-14.
"CandleVolume [ChartSchool]". Stockcharts. Retrieved 22 October 2019.
Lu, Tsung-Hsun; Shiu, Yung-Ming; Liu, Tsung-Chi (2012-04-01). "Profitable
candlestick trading strategies—The evidence from a new perspective". Review of
Financial Economics. 21 (2): 63–68. doi:10.1016/j.rfe.2012.02.001.
vte
Technical analysis
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Categories: Financial chartsJapanese inventions

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