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What is Candlestick Charting? (Video)

What is Candlestick Charting? (Video)
March 10
20:53 2012

A candlestick chart is a type of bar-chart in which each bar represents the movements in price of a security, currency, or derivative. The visual representation is easy to interpret and has been a major part of technical analysis. Candlestick charting was developed by the Japanese in the 17th century as a pricing methodology to trade rice. It was later adopted in other markets around the world. Sometimes it is referred to as Japanese candlesticks.

How is a candlestick formed?

The candlestick is composed of the body and the upper and lower wicks or shadows. The upper wick represents the highest price during that time interval and the lower wick represents the lowest price. The body composes the area between the open price and the closing price. Depending on your preference, the body can either be hollowed or filled. Traditionally, if the closing price is higher than the open price the candlestick body will be filled as green. If the closing price is lower than the open price the candle will be filled as red.

Now, watch the video for a detailed explanation.

What is candlestick charting used for?

Candlestick charts, combined with other technical indicators, can be used to signal buy or sell opportunities. Candlestick charts produce these signals as patterns. These patterns can offer signals of a bullish or bearish markets and range from simple to complex. Longer bars signal strength in a particular direction. For example when a candle bar is green and large compared to previous bars, this may be a bullish signal. If the candle is red and low compared to previous bar, this may be a bearish signal.

What is the advantage of candlestick charting?

The most noteworthy advantage of candlestick charting is that it is easy to read. Knowing a securities closing price makes it easier to spot bearish and bullish trends. Also a trader can study past candlestick movement to predict what will happen next as patterns tend to repeat themselves. Candlesticks can also be used to evaluate what is going on in the short term as well as the long term.

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