Candlestick Definition
What Is A Candlestick?
A candlestick is a type of price chart used that displays the high,
low, open, and closing prices of a security for a specific period. It
originated from Japanese rice merchants and traders to track market
prices and daily momentum hundreds of years before becoming popularized
in the United States. The wide part of the candlestick is called the
"real body" and tells investors whether the closing price was higher or
lower than the opening price (black/red if the stock closed lower,
white/green if the stock closed higher).
5:40
Candlestick Charts
The Basics Of A Candlestick
The candlestick's shadows show the day's high and low and how they
compare to the open and close. A candlestick's shape varies based on the
relationship between the day's high, low, opening and closing prices.
Candlesticks reflect the impact of investor sentiment on security prices and are used by technical analysts
to determine when to enter and exit trades. Candlestick charting is
based on a technique developed in Japan in the 1700s for tracking the
price of rice. Candlesticks are a suitable technique for trading any
liquid financial asset such as stocks, foreign exchange and futures.
Long white/green candlesticks
indicate there is strong buying pressure; this typically indicates
price is bullish. However, they should be looked at in the context of
the market structure as opposed to individually. For example, a long
white candle is likely to have more significance if it forms at a major
price support level. Long black/red candlesticks indicate there is
significant selling pressure. This suggests the price is bearish. A
common bullish candlestick reversal pattern, referred to as a hammer,
forms when price moves substantially lower after the open, then rallies
to close near the high. The equivalent bearish candlestick
is known as a hanging man. These candlesticks have a similar appearance
to a square lollipop, and are often used by traders attempting to pick a
top or bottom in a market.
Traders can use candlestick signals to analyze any and all periods of
trading including daily or hourly cycles—even for minute-long cycles of
the trading day.
Two-Day Candlestick Trading Patterns
There are many short-term trading strategies based upon candlestick
patterns. The engulfing pattern suggests a potential trend reversal; the
first candlestick has a small body that is completely engulfed by the
second candlestick. It is referred to as a bullish engulfing pattern
when it appears at the end of a downtrend, and a bearish engulfing
pattern at the conclusion of an uptrend. The harami is a reversal
pattern where the second candlestick is entirely contained within the
first candlestick and is opposite in color. A related pattern, the harami cross has a second candlestick that is a doji; when the open and close are effectively equal.
Three-Day Candlestick Trading Patterns
An evening star
is a bearish reversal pattern where the first candlestick continues the
uptrend. The second candlestick gaps up and has a narrow body. The
third candlestick closes below the midpoint of the first candlestick. A morning star
is a bullish reversal pattern where the first candlestick is long and
black/red-bodied, followed by short candlestick that has gapped lower;
it is completed by a long-bodied white/green candlestick that closes
above the midpoint of the first candlestick.
Key Takeaways
- Candlestick charts display the high, low, open, and closing prices of a security for a specific period.
- Candlesticks originated from Japanese rice merchants and traders to track market prices and daily momentum hundreds of years before becoming popularized in the United States.
- Candlesticks can be used by traders looking for chart patterns.
:max_bytes(150000):strip_icc()/candlestick_chart_board_shutterstock_551178529-5bfc307446e0fb00511a9404.jpg)
:max_bytes(150000):strip_icc()/thinkstockphotos-524858617_copy-5bfc34a946e0fb00517d9f7f.jpg)
:max_bytes(150000):strip_icc()/thinkstockphotos-474829900-5bfc34e346e0fb0051469479.jpg)
:max_bytes(150000):strip_icc()/hanging_man_thinkstock_101758700-5bfc375a46e0fb005147df1c.jpg)
:max_bytes(150000):strip_icc()/GettyImages-164471240-d5784e58b14944d68e24995bace21e46.jpg)
:max_bytes(150000):strip_icc()/thinkstock_candlestick_524858617-5bfc304046e0fb00511a8abe.jpg)
No comments:
Post a Comment