Candlesticks are defined as a representation on a chart used to show changes in price over time. Each candle provides 4 points of information, the opening price, the closing price, the high, and the low. Also known as ‘candles’ and ‘Japanese candlesticks’.
The Japanese developed this type of chart hundreds of years ago while trading rice and so it was named after them. Today, many investors prefer candles because they are easy to understand and provide a lot of quick information.
Candles have two parts, the body (it can be hollow or filled) and the long thin lines drawn above and/or below. The lines are also called “wicks”, “shadows”, or “tails”.
- The body is used to show the opening and closing price for that time period.
- The wicks are used to show the highest price and lowest price reached for that time period.
Candles are often red or green, where red indicates a price started high and ended low and green indicates a price that started low and ended high. Some candles are black and white, where black indicates a price that started high and ended low and white indicates a price that started low and ended high.
Candles represent a single time period. For example, if you are looking at a 1 hour chart, each candle represents 1 hour of trades.
Some candles are long and some candles are short. Long candles tell you there was a lot of pressure to buy or sell and short candles tell you there was very little pressure.