Candlestick charts are one of the two most popular types of trading chart (the other being bar charts). Candlestick charts include all of the standard trading information (e.g. opening price, closing price, etc.) and they are relatively easy to read and interpret.
Candlestick charts include several pieces of trading information, including the following:
- Open - The first price traded during the candlestick
- High - The highest price traded during the candlestick
- Low - The lowest price traded during the candlestick
- Close - The last price traded during the candlestick
By including the open and close, candlestick charts show whether the bar was an upward candlestick (i.e. closed higher than it opened), or a downward candlestick (i.e. closed lower than it opened). By including the high and low, candlestick charts also show the range of the bar (i.e. the distance between the high and the low of the candlestick).
Candlesticks charts can be set to a variety of different time frames, not all of which are actually based upon time. Candlestick charts can be set to any length of time, number of ticks, amount of volume, or price range. Examples of short term time frames include:
- 2 minutes
- 66 ticks (price changes)
- 250 volume (shares, contracts, etc.)
and examples of long term time frames include:
- 1 day
- 1 week
- 1 month
Each candlestick on a candlestick chart represents the trading that occurred during the time frame. For example, on a 2 minute candlestick chart, each candlestick shows the trading information for 2 minutes, on a 66 tick candlestick chart, each candlestick shows the trading information for 66 price changes, and on a daily candlestick chart, each candlestick shows the trading information for 1 day.
Display and Configuration
Most charting software supports candlestick charts, and there are usually some aspects of the candlestick chart's display that can be customized. Note that unlike bar charts, candlestick charts always use different colors for upward and downward candlesticks, because the difference in color is the only way to tell the difference between an upward and downward candlestick. In the example candlestick chart shown above (view full size chart), the upward candlesticks are colored green, and the downward candlesticks are colored red.