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Reading a Candlestick

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Candlestick Chart

Single Candlestick

Candlestick charts are one of the most popular graphical charts (the other being bar charts). Understanding how to read a single candlestick within a candlestick chart is essential to understanding how the candlesticks within a candlestick chart interact with each other, to provide a complete picture of the underlying market.

Reading a Single Candlestick

Candlestick charts consist of many individual candlesticks, with each candlestick representing the trading information for the chart time frame. For example, in a fifteen minute candlestick chart, each candlestick represents fifteen minutes of trading information.

The trading information that is shown includes the opening price of the candlestick (or time frame), the high and low prices of the candlestick, the closing (or last) price of the candlestick, the direction of the candlestick, and the range of the candlestick. All of this information is shown graphically (i.e. without needing to be calculated), so the information is available visually almost instantly.

Opening Price

The opening price of the candlestick is shown by the wide part of the candlestick (i.e. the candle), in combination with the color of the candlestick. If the candlestick is an upward candlestick (often colored green), the opening price is shown by the bottom of the wide part of the candlestick. Conversely, if the candlestick is a downward candlestick (often colored red), the opening price is shown by the top of the wide part of the candlestick. The opening price is the first price that was traded during the time frame represented by the candlestick. In the example chart, the opening price is shown by the bottom of the wide green vertical bar.

Closing Price

The closing price of the candlestick is also shown by the wide part of the candlestick, in combination with the color of the candlestick. If the candlestick is an upward candlestick (often colored green), the closing price is shown by the top of the wide part of the candlestick. Conversely, if the candlestick is a downward candlestick (often colored red), the closing price is shown by the bottom of the wide part of the candlestick. The closing price is the last price that was traded during the time frame represented by the candlestick. In the example chart, the opening price is shown by the top of the wide green vertical bar.

High and Low Prices

The high and low prices of the candlestick are shown by the top and bottom of the thin vertical line (i.e. the wick). The high price is the highest price that was traded during the time frame represented by the candlestick, and the low price is the lowest price that was traded during the same time frame. In the example chart, the high and low prices are shown by the top and bottom of the thin green vertical line.

Direction of the candlestick

The direction of the candlestick is shown by the color of the candlestick. For example, an upward candlestick might be colored green, and a downward candlestick might be colored red. Most charting software allows the colors of the candlesticks to be customized, but candlestick charts always require that the upward and downward colors are different, otherwise the chart cannot be read. The direction represents whether the price moved up or down during the time frame represented by the candlestick. The candlestick shown in the example chart is a green candlestick, and hence is an upward candlestick (i.e. the price moved up during this candlestick).

Range of the candlestick

The range of the candlestick is shown by the length of the thin vertical line (the wick). The range of the candlestick represents the volatility of the price during the time frame represented by the candlestick. If the thin vertical line is shorter than the previous candlesticks, then the range has decreased (i.e. the volatility has decreased). If the thin vertical line is longer than the previous candlesticks, then the range has increased (i.e. the volatility has increased). The range of the candlestick is the same as the high price of the candlestick minus the low price of the candlestick.

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