Candlestick chart

A candlestick chart is a style of bar-chart used primarily to describe price movements of a security (finance), derivative, or currency over time.

It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity and currency price patterns. They appear superficially similar to error bars, but are unrelated.

Candlestick layout

The basic candlestick

Candlesticks are usually composed of the body (black or white), and an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a security during the time interval represented. The body illustrates the opening and closing trades. If the security closed higher than it opened, the body is white or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is black, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

To better highlight price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick body with colors such as red (for a lower closing) and blue or green (for a higher closing).

Candlestick simple patterns

There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names:

White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price increase)

Black candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price decrease)

Long lower shadow - bullish signal (the lower wick must be at least the body's size; the longer the lower wick, the more reliable the signal)

Long upper shadow - bearish signal (the upper wick must be at least the body's size; the longer the upper wick, the more reliable the signal)

Hammer - a bullish pattern during a downtrend (long lower wick and small or no body); Shaven head - a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick); Hanging man - bearish pattern during an uptrend (long lower wick, small or no body; wick has the multiple length of the body.

Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade (may be either a white or black body); Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade (no lower wick); Shooting star - a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)

Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns

Spinning top black - neutral pattern, meaningful in combination with other candlestick patterns

Doji - neutral pattern, meaningful in combination with other candlestick patterns

Long legged doji - signals a top reversal

Dragonfly doji - signals trend reversal (no upper wick, long lower wick)

Gravestone doji - signals trend reversal (no lower wick, long upper wick)

Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick)

Marubozu black - dominant bearish trades, continued bearish trend (no upper, no lower wick)

Complex Patterns

Itimoku Kinkô Hyô, the applied candlestick chart commonly used in Japan.

In addition to the rather simple patterns depicted in the section above, there are more complex and difficult patterns which have been identified since the charting method's inception.

Candlestick charts also convey more information than other forms of charts, such as bar charts. Just as with bar charts, they display the absolute values of the open, high, low, and closing price for a given period. But they also show how those prices are relative to the prior periods' prices, so one can tell by looking at one bar if the price action is higher or lower than the prior one. They are also visually easier to look at ^{[citation needed]}, and can be colorized for even better definition.

Use of candlestick charts

Candlestick charts are a visual aid for decision making in stock, forex, commodity, and options trading. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true for a black bar.

Open-high-low-close chart

An open-high-low-close chart (also OHLC chart, or simply bar chart) is a type of chart typically used to illustrate movements in the price of a financial instrument over time. Each vertical line on the chart shows the price range (the highest and lowest prices) over one unit of time, e.g. one day or one hour. Tick marks project from each side of the line indicating the opening price (e.g. for a daily bar chart this would be the starting price for that day) on the left, and the closing price for that time period on the right. The bars may be shown in different hues depending on whether prices rose or fell in that period.

The Japanese candlestick chart is another way of displaying market price data, with the opening and closing prices defining a rectangle within the range for each time unit. Both charts show the exact same data, i.e. the opening, high, low, and closing prices during a particular time frame. Some traders find the candlestick chart easier to read.