What is Candlestick Chart?
1193 Views · Updated December 5, 2024
A candlestick is a type of price chart used in technical analysis. It displays the high, low, open, and closing prices of a security for a specific period. The candlestick originated from Japanese rice merchants and traders hundreds of years before becoming popularized in the United States. It was used to track market prices and daily momentum.The wide part of the candlestick is called the "real body." It tells investors whether the closing price is higher or lower than the opening price. It appears as black/red if the stock closed lower or white/green if the stock closed higher.
Definition
A candlestick chart is a type of price chart used in technical analysis. It displays the high, low, open, and close prices of a security for a specific period. The wide part of the candlestick is called the 'body,' which indicates whether the closing price was higher or lower than the opening price. If the stock closes lower than it opened, the body is shown in black/red; if it closes higher, the body is shown in white/green.
Origin
Candlestick charts originated with Japanese rice merchants and traders, who used them centuries before they were introduced to the United States. They were used to track market prices and daily momentum.
Categories and Features
Candlestick charts can be categorized into various types, such as single candlestick patterns, double candlestick patterns, and multiple candlestick patterns. A single candlestick provides market information for one trading day, while double and multiple candlestick patterns are used to identify market trends and reversal signals. The advantage of candlestick charts lies in their intuitive and easy-to-understand visual representation, but they can also produce misleading signals, especially during high market volatility.
Case Studies
During the 2008 financial crisis, many investors used candlestick charts to identify market reversal signals. For example, certain bank stocks showed a 'evening star' pattern in the early stages of the crisis, a typical bearish reversal signal, helping investors adjust their strategies in time. Another example is Apple's stock price rebound in early 2019, where candlestick charts showed a 'morning star' pattern, indicating an upward trend in stock prices.
Common Issues
Common issues investors face when using candlestick charts include over-reliance on single candlestick patterns while ignoring the overall market trend. Additionally, candlestick charts can produce misleading signals during high market volatility, so it is recommended to use them in conjunction with other technical analysis tools.
Disclaimer: This content is for informational and educational purposes only and does not constitute a recommendation and endorsement of any specific investment or investment strategy.