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{{short description|Type of financial chart}} |
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[[Image:Candlestick-chart.png|thumb|320px|right|Candlestick chart of EURUSD]] |
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A '''candlestick chart''' is a style of [[bar-chart]] used primarily to describe price movements of an [[Stock|equity]] over time. |
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[[File:Candlestick chart scheme 01-en.svg|thumb|200px|Scheme of a single candlestick chart. A candlestick as this one is usually shaded red as the close is lower than the open. The Low and High caps are usually not present but may be added to ease reading.]] |
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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. |
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[[File:Order book depth chart.gif|thumb|300px|An hourly candlestick shown with [[Order book (trading)|order book]] depth on a currency exchange.]] |
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A '''candlestick chart''' (also called '''Japanese candlestick chart''' or '''K-line'''<ref>{{cite journal |last1=Tao |first1=Lv |last2=Hao |first2=Yongtao |last3=Yijie |first3=Hao |last4=Chunfeng |first4=Shen |title=K-Line Patterns’ Predictive Power Analysis Using the Methods of Similarity Match and Clustering |journal=Mathematical Problems in Engineering |date=2017 |volume=2017 |pages=1–11 |doi=10.1155/2017/3096917|doi-access=free }}</ref>) is a style of financial chart used to describe price movements of a [[security (finance)|security]], [[derivative (finance)|derivative]], or [[currency]]. |
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While similar in appearance to a bar chart, each candlestick represents four important pieces of information for that day: open and close in the thick body, and high and low in the "[[candle wick]]". Being densely packed with information, it tends to represent [[trading|trading patterns]] over short periods of time, often a few days or a few trading sessions.{{cn|date=July 2023}} |
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== History == |
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'''Candlestick charts''' are said to have been developed in the 18th century by legendary Japanese rice trader [[Homma Munehisa]]. The charts gave Homma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. Since the 17th century, there has been a lot of effort to relate chart patterns to the ldata points instead of one.The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand. |
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[[File:Candlestick Chart in MetaTrader 5.png|thumb|300px|Candlestick chart of EUR/USD [[currency pair]] on daily timeframe in [[MetaTrader 4|MetaTrader 5]] trading platform.]] |
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The method was picked up by [[Charles Dow]] around 1900 and remains in common use by today's traders of [[financial instrument]]s. |
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Candlestick charts are most often used in [[technical analysis]] of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period.{{cn|date=July 2023}} They are visually similar to [[box plot]]s, though box plots show different information.<ref>{{cite book |last1=Patel |first1=Ravi |title=Guide To Technical Analysis & Candlesticks |date=1 January 2010 |publisher=Buzzingstock Publishing House|asin=B00GZMSEDM}}</ref> |
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==History== |
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== Candlestick chart topics == |
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Candlestick charts are thought to have been developed in the 18th century by [[Munehisa Homma]], a [[Japanese language|Japanese]] rice trader.<ref>{{Cite book|title=Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures|last=Gregory M.|first=Morris|publisher=[[McGraw-Hill Education|McGraw-Hill]]|year=2006|isbn=9780071461542}}</ref> They were introduced to the Western world by Steve Nison in his book ''Japanese Candlestick Charting Techniques'', first published in 1991. They are often used today in stock analysis along with other analytical tools such as [[Fibonacci retracement|Fibonacci analysis]].<ref name="nison">{{Cite book|title=Japanese Candlestick Charting Techniques|last=Nison|first=Steve|publisher=[[Prentice Hall|Prentice Hall Press]]|year=2001|edition=2nd|isbn=9780735201811|url-access=registration|url=https://archive.org/details/japanesecandlest0000niso}}</ref> |
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[[Image:Candle definition en.svg|thumb|right|240px|The basic candlestick]] |
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=== Candlestick layout === |
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In ''Beyond Candlesticks'',<ref>{{Cite book|title=Beyond Candlesticks: New Japanese Charting Techniques Revealed|last=Nison|first=Steve|publisher=[[Wiley (publisher)|John Wiley & Sons]]|year=1994|isbn=9780471007203}}</ref> Nison says: |
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[[Candle]]sticks are usually composed of the body (black or white), and an upper and a lower shadow ([[candle wick|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. |
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<blockquote>However, based on my research, it is unlikely that Homma used candle charts. As will be seen later, when I discuss the evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in Japan (in the late 1800s).</blockquote> |
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==Description== |
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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). |
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The area between the open and the close is called the ''real body'', price excursions above and below the real body are ''shadows'' (also called [[candle wick|''wicks'']]). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades. |
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The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick. The range is calculated by subtracting the low price from the high price. |
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===Candlestick simple patterns=== |
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[[Image:Basiccandlesticks.GIF|right]] |
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There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names: |
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The fill or the color of the candle's body represent the price change during the period. Normally, if the asset closed higher than it opened, the body is displayed as hollow (or the green color is used), with the opening price at the bottom of the body and the closing price at the top. Conversely, if the asset closed lower than it opened, the body is displayed as filled (or the red color is used), with the opening price at the top and the closing price at the bottom. Modern charting software permits unrestricted customization of candle looks and colors, so the actual look of rising or falling price candles may vary. |
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# White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price increase) |
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# Black candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price decrease) |
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# Long lower shadow - [[Market trends#Bull market|bullish]] signal (the lower wick must be at least the body's size; the longer the lower wick, the more reliable the signal) |
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# Long upper shadow - [[Market trends#Bear market|bearish]] signal (the upper wick must be at least the body's size; the longer the upper wick, the more reliable the signal) |
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# [[Hammer (candlestick pattern)|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. |
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# 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) |
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# [[spinning top (chart pattern)|Spinning top]] white - neutral pattern, meaningful in combination with other candlestick patterns |
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# [[spinning top (chart pattern)|Spinning top]] black - neutral pattern, meaningful in combination with other candlestick patterns |
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# [[Doji]] - neutral pattern, meaningful in combination with other candlestick patterns |
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# Long legged doji - signals a top reversal |
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# Dragonfly doji - signals trend reversal (no upper wick, long lower wick) |
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# Gravestone doji - signals trend reversal (no lower wick, long upper wick) |
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# Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick) |
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# Marubozu black - dominant bearish trades, continued bearish trend (no upper, no lower wick) |
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A version of a candlestick chart is a ''hollow candlestick'' chart, where both fill and color are used to represent different price relationships:<ref>{{Cite web |url=https://www.highcharts.com/blog/tutorials/how-to-read-hollow-candlesticks/ |title=How to Read Hollow Candlesticks |date=2021-08-20 |access-date=2024-01-14 |website=Highcharts |last=Mekhatria |first=Mustapha}}</ref> |
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===Complex Patterns=== |
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* Solid candles show that the current close price is less than the current open price. |
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[[Image:itimoku kinkoo hyoo.png|thumb|320px|right|Itimoku Kinkô Hyô, the applied candlestick chart commonly used in Japan.]] |
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* Hollow candles show that the current close price is greater than the current open price. |
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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. |
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* Red candles show that the current close price is less than the previous close price. |
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* Green candles show that the current close price is greater than the previous close price. |
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A candlestick need not have either a body or a wick. Generally, the longer the body of the candle, the more intense the trading.<ref name="nison" /> |
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Candlestick charts also convey more information than other forms of charts, such as [[Open-high-low-close chart|bar chart]]s. 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 {{Fact|date=June 2009}}, and can be colorized for even better definition. |
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[[File:Candlestick chart scheme 03-en.svg|thumb|245px|In trading, the trend of the candlestick chart is critical and often shown with colors.]] |
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Candlesticks can also show the current price as they're forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time. |
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===Use of candlestick charts=== |
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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. |
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Rather than using the open, high, low, and close values for a given time interval, candlesticks can also be constructed using the open, high, low, and close of a specified volume range (for example, 1,000; 100,000; 1 million shares per candlestick).{{Citation needed|date=October 2019}} In modern charting software, volume can be incorporated into candlestick charts by increasing or decreasing candlesticks width according to the relative volume for a given time period.<ref>{{Cite web|url=https://school.stockcharts.com/doku.php?id=chart_analysis:candlevolume|title=CandleVolume [ChartSchool]|website=Stockcharts|access-date=22 October 2019}}</ref> |
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== See also == |
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* [[Kagi chart]] |
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* [[Pivot point calculations]] |
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* [[Technical Analysis]] |
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* [[Chart pattern]] |
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* [[Open-high-low-close chart]] |
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== |
==Usage== |
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{{Unreferenced|date=August 2008}} |
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Candlestick charts are a visual aid for decision making in [[stock trader|stock]], [[Foreign exchange market|foreign exchange]], [[commodity market|commodity]], and [[Option (finance)|option]] trading. By looking at a candlestick, one can identify an asset's opening and closing prices, highs and lows, and overall range for a specific time frame.<ref>{{Cite journal|last=Lu|first=Tsung-Hsun|last2=Shiu|first2=Yung-Ming|last3=Liu|first3=Tsung-Chi|date=2012-04-01|title=Profitable candlestick trading strategies—The evidence from a new perspective|journal=Review of Financial Economics|volume=21|issue=2|pages=63–68|doi=10.1016/j.rfe.2012.02.001}}</ref> Candlestick charts serve as a cornerstone of technical analysis. For example, when the bar is white and high relative to other time periods, it means buyers are very [[Market sentiment|bullish]]. The opposite is true when there is a black bar. |
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A [[candlestick pattern]] is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends.{{citation needed|date=March 2020}} |
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==External links== |
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*[http://www.ignatpost.com/ Free Candlestick Analysis - Traders Magazine IgnatPost.com] |
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==Heikin-Ashi candlesticks== |
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[[Category:Statistical charts and diagrams]] |
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Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way:{{cn|date=July 2023}} |
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[[Category:Technical analysis]] |
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* Close = (real open + real high + real low + real close) / 4 |
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* Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2 |
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* High = max(real high, Heikin-Ashi open, Heikin-Ashi close) |
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* Low = min(real low, Heikin-Ashi open, Heikin-Ashi close) |
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The body of a Heikin-Ashi candle does not always represent the actual open/close. Unlike with regular candlesticks, a long wick shows more strength, whereas the same period on a standard chart might show a long body with little or no wick.{{cn|date=July 2023}} |
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==References== |
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{{commons category}} |
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{{reflist}} |
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{{technical analysis}} |
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[[Category:Financial charts]] |
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[[Category:Japanese inventions]] |
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[[cs:Svícový graf]] |
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[[de:Chartanalyse#Candlestick-Chart (Kerzenchart)]] |
[[de:Chartanalyse#Candlestick-Chart (Kerzenchart)]] |
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[[es:Gráfico de velas]] |
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[[fr:Chandeliers japonais]] |
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[[it:Candlestick]] |
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[[he:גרף נרות יפאניים]] |
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[[ja:ローソク足]] |
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[[pl:Świece japońskie]] |
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[[pt:Candlestick]] |
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[[ru:Японские свечи]] |
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[[zh:K线]] |
Latest revision as of 13:47, 13 April 2024
A candlestick chart (also called Japanese candlestick chart or K-line[1]) is a style of financial chart used to describe price movements of a security, derivative, or currency.
While similar in appearance to a bar chart, each candlestick represents four important pieces of information for that day: open and close in the thick body, and high and low in the "candle wick". Being densely packed with information, it tends to represent trading patterns over short periods of time, often a few days or a few trading sessions.[citation needed]
Candlestick charts are most often used in technical analysis of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period.[citation needed] They are visually similar to box plots, though box plots show different information.[2]
History
Candlestick charts are thought to have been developed in the 18th century by Munehisa Homma, a Japanese rice trader.[3] They were introduced to the Western world by Steve Nison in his book Japanese Candlestick Charting Techniques, first published in 1991. They are often used today in stock analysis along with other analytical tools such as Fibonacci analysis.[4]
In Beyond Candlesticks,[5] Nison says:
However, based on my research, it is unlikely that Homma used candle charts. As will be seen later, when I discuss the evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in Japan (in the late 1800s).
Description
The area between the open and the close is called the real body, price excursions above and below the real body are shadows (also called wicks). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades.
The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick. The range is calculated by subtracting the low price from the high price.
The fill or the color of the candle's body represent the price change during the period. Normally, if the asset closed higher than it opened, the body is displayed as hollow (or the green color is used), with the opening price at the bottom of the body and the closing price at the top. Conversely, if the asset closed lower than it opened, the body is displayed as filled (or the red color is used), with the opening price at the top and the closing price at the bottom. Modern charting software permits unrestricted customization of candle looks and colors, so the actual look of rising or falling price candles may vary.
A version of a candlestick chart is a hollow candlestick chart, where both fill and color are used to represent different price relationships:[6]
- Solid candles show that the current close price is less than the current open price.
- Hollow candles show that the current close price is greater than the current open price.
- Red candles show that the current close price is less than the previous close price.
- Green candles show that the current close price is greater than the previous close price.
A candlestick need not have either a body or a wick. Generally, the longer the body of the candle, the more intense the trading.[4]
Candlesticks can also show the current price as they're forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time.
Rather than using the open, high, low, and close values for a given time interval, candlesticks can also be constructed using the open, high, low, and close of a specified volume range (for example, 1,000; 100,000; 1 million shares per candlestick).[citation needed] In modern charting software, volume can be incorporated into candlestick charts by increasing or decreasing candlesticks width according to the relative volume for a given time period.[7]
Usage
Candlestick charts are a visual aid for decision making in stock, foreign exchange, commodity, and option trading. By looking at a candlestick, one can identify an asset's opening and closing prices, highs and lows, and overall range for a specific time frame.[8] Candlestick charts serve as a cornerstone of technical analysis. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true when there is a black bar.
A candlestick pattern is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends.[citation needed]
Heikin-Ashi candlesticks
Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way:[citation needed]
- Close = (real open + real high + real low + real close) / 4
- Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2
- High = max(real high, Heikin-Ashi open, Heikin-Ashi close)
- Low = min(real low, Heikin-Ashi open, Heikin-Ashi close)
The body of a Heikin-Ashi candle does not always represent the actual open/close. Unlike with regular candlesticks, a long wick shows more strength, whereas the same period on a standard chart might show a long body with little or no wick.[citation needed]
References
- ^ Tao, Lv; Hao, Yongtao; Yijie, Hao; Chunfeng, Shen (2017). "K-Line Patterns' Predictive Power Analysis Using the Methods of Similarity Match and Clustering". Mathematical Problems in Engineering. 2017: 1–11. doi:10.1155/2017/3096917.
- ^ Patel, Ravi (1 January 2010). Guide To Technical Analysis & Candlesticks. Buzzingstock Publishing House. ASIN B00GZMSEDM.
- ^ Gregory M., Morris (2006). Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures. McGraw-Hill. ISBN 9780071461542.
- ^ a b Nison, Steve (2001). Japanese Candlestick Charting Techniques (2nd ed.). Prentice Hall Press. ISBN 9780735201811.
- ^ Nison, Steve (1994). Beyond Candlesticks: New Japanese Charting Techniques Revealed. John Wiley & Sons. ISBN 9780471007203.
- ^ Mekhatria, Mustapha (2021-08-20). "How to Read Hollow Candlesticks". Highcharts. Retrieved 2024-01-14.
- ^ "CandleVolume [ChartSchool]". Stockcharts. Retrieved 22 October 2019.
- ^ Lu, Tsung-Hsun; Shiu, Yung-Ming; Liu, Tsung-Chi (2012-04-01). "Profitable candlestick trading strategies—The evidence from a new perspective". Review of Financial Economics. 21 (2): 63–68. doi:10.1016/j.rfe.2012.02.001.