Candlestick Charts 

In the example shown below you see a single candle that has been extracted from the chart. As discussed earlier, this candle is constructed using the exact same data as a bar chart (high, low, open, and closing prices).

 

The candle starts out as a horizontal line signifying the opening price of the stock or commodity being tracked. As the security then drifts around and eventually closes the candlestick is then drawn. In this case the close was higher than the open so the candle would fill in green or in the case of a classic candlestick chart, it would be hollow. We also plot the high and low price reached which is signified by the wicks that can be seen on the top and bottom of the candle .  

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In the next illustration you can see an example of a bearish candlestick signified by its red color. This time the security closed at a price which was lower than its opening price. Like the previous bullish candlestick, you can also identify the high and low prices reached during the session.

Besides providing us with a visual advantage, candlestick charts also offer another critical benefit. The actual patterns that these charts form can often times are an excellent predictor of moves in the market, individual stocks, futures contracts, and currencies. Patterns like dojis, bullish and bearish engulfings, hanging men, and hammers are all used on a daily basis in our trading.

 

For more information on candlestick charts and specific chart patterns, check out the Accuinvest technical analysis video set.