What Is A Candlestick Chart
Price changes are shown in a chart in the form of a “candle”. It is a representation for technical chart analysis. The “body” of the candle indicates the difference between the opening and closing prices. Depending on whether the prices have risen or fallen, the “candles” are displayed in different colors. The respective highs and lows are represented by the “wicks of the candle”, which are displayed at the top and bottom.
These “candlesticks” diagrams, or simply called candlesticks, are the basis of almost all trading programs and software tools. The charts shown so far and the corresponding aids, such as trend lines and trend channels, are of course also valid together with the candlestick charts.
How do I read a candlestick chart?
But how do you have to read and interpret such a candle chart? For this it is important to first understand what makes a single candle and how it is constructed. There are 2 types of candles, the green candle and the red candle. In black and white diagrams the green candle is white and the red candle is black. But since we are in the age of colors, we continue with colorful pictures here.
The body of a candle is the opening price (Open) and the closing price (Close). Here, the period of time for which a candle should apply, plays a role. For example, in the chart above, the period is one hour. This means that a candle represents the opening price and closing price of one hour. Depending on the software, you can display individual minutes, 5 minutes, 15 minutes, 30 minutes, hours, weeks or months. If you then line the individual candles together, a chart is created, in the example above you can display the course of the last three days in hourly candles.
The wick of a candle reflects the high or low point within the period. That means within the hour shown, the course was briefly above or below the Open or Close! Quotes fluctuate and this is very clear on the candlestick charts. Depending on how big the body and the upper / lower wick of a candle, one can make assumptions about the further price course.
For this purpose, it will now be explained briefly by means of a section, what can be “read” in the individual candles:
1. Here, the opening price was above the closing price, ie the price fell in this hour. In the meantime, there were even very heavy losses, but in the market there were enough “buyers” of the euro, which supported the currency again, so that the candle was not closed so deeply.
2. The second candle has almost no body, ie Open and Close are almost identical. Although there were short-term moves up and down, the market was still very balanced at the end.
3. The last two candles always wanted to point downwards, but were again heaved up by the “buyers”. This is a sign that it can quickly go up when there are enough buyers. In the third candle you can see this, it is a small “shopping spree” and the course closes well above the opening. The body of the candle is therefore very large.
4. But every purchase frenzy has an end and it can go downhill just as fast.
5. Sell all suddenly, then slips off the course and this is reflected in a very large red candle.
6. Now one can speculate that it goes further downhill. But it can turn as well, of course, a candle alone can never make a reliable statement here. The other elements of the technical analysis should therefore always be used in addition.
7. If you charted a downtrend line throughout the chart, the 7th candle would be a sign that the downtrend is breaking up. But beware: a candle has only a meaningfulness when it is completed. An “open” candle – the current candle in the chart – shows only a snapshot, at the beginning of a candle this is only a few minutes and not an entire hour.
8. If a candle is closed, you can see the presumption from point 7 confirmed. Here, for example, you could buy and hope for a rising price. Just as the 8th candle finally closed, this would have been a correct decision. Later in the chart, things went even further up later.