The candlestick chart, also commonly known as the Japanese candlestick chart (in reference from the country it originated), consists of the same 4 components as that of the bar chart; open, high, low, close.
The candlestick chart is the most widely used chart type among traders, but what makes it different to the bar chart?
There are 3 fundamental features that makes the candlestick chart unique;
Feature 1:
The main ‘body’ of the candlestick, known as the ‘real body’, is the range between the open and the close.
Feature 2:
The high and lows are represented by lines called the wickes (also known as tails).
Feature 3:
If the close has a higher price than the open than the candle will be green.
If the close has a lower price than the open then the candle will be red.
This colour scheme may vary on different trading platforms!
Benefits of the candlestick chart
Easily Visible
Just by looking at the colour and length of a candlestick, traders can determine instantly if the market is strengthening (becoming bullish) or weakening (becoming bearish).
Also, traders can more easily determine if an uptrend is part of bullish momentum or simply a spike.
Identify Unique Market Patterns
Candlestick charts display specific bullish and bearish reversal patterns that cannot be seen on other types of charts.
Drawbacks of the candlestick chart
Complicated
Some say, bar charts are easier to read, because the horizontal lines stick out in such a way that the open and close are obvious to read.
On the other hand, candlestick charts show these values through the colour which are not always as clear.
You do not need colours on a bar chart to read whether bars are bullish or bearish, whereas with candlesticks they are critical.
LESSON SUMMARY:
- The candlestick chart is designed around the 4 key components of price; open, high, low and close.
- Candlestick charts are the most widely used chart amongst traders.
- There are 3 fundamental features of the candlestick chart that make it unique:
Feature 1:
The main ‘body’ of the candlestick, known as the ‘real body’, is the range between the open and the close.
Feature 2:
The high and lows are represented by lines called the wickes (also known as tails).
Feature 3:
If the close has a higher price than the open than the candle will be green.
If the close has a lower price than the open then the candle will be red.
