What are Candlesticks?

One of the first things you will have to learn to read on your trading charts are a signal called candlesticks.

These are the signals which mark price ranges for the chosen trading period.

Each candle signifies four price points. These are the opening price, the closing price, the highest price during that period and the lowest price.

Below is an illustration of a trading candlestick. The solid part in the middle is known as the body and the thin points are known as wicks. We will assume for this explanation that this is a candle from a rising market. The bottom of the body section is the opening price, the top of the body section is the closing price. The end of the lower wick is the lowest price and the top of the upper wick is the highest price.

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How do we tell the difference?

Clearly if all of the candles on the trading chart are the same colour then we will have no idea in which direction the market is moving. To solve this issue we edit our charts to give the rising candles one colour and the falling candles a different colour. My preference is to use green for rising and red for falling, this makes it easy to read the chart at a glance.                                                                 ©image copyright averych/shutterstock.

Different Types of Candles.

Depending on the size of the body section and its position in the price range there are different names given to different types of candles. A standard size candle in a rising market is called a bullish candle and a standard size candle in a falling market is called a bearish candle.

Candles with a very small body and one wick much longer than the other is called a Hammer candle at the bottom of the market and a shooting star at the top of the market.                                                       © image copyright Pavlo S/Shutterstock.com

 

I will cover other candle names and patterns in a later post. This should be enough to get you started for the time being.

Filed under: Tools and Strategies

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