What is Candlestick Charting?

Published: 2024-04-04 22:49:41

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CANDLESTICK CHARTING — A BASIS FOR TECHNICAL ANALYSIS

Way before some of the fancy oscillators and algorithms traders use for signals today were ever thought of, the Japanese developed a powerful method to analyze stocks that is still used today.  This method of technical analysis, candlestick charting, was developed in the 1600s to analyze the price of rice contracts.  More recently, Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation.

Candlestick charting displays the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don’t involve any calculations.

Each candlestick represents one period (most commonly 1 day or 1 week) of data. Below are the basic elements of a candlestick.  These elements, as simple as they are provide indications of strength of buyers and sellers – very useful technical analysis

A CANDLESTICK EXPLAINED

You can quickly see on each candle (as illustrated in the graphic) the following information:

  • The Opening Price
  • The Closing Price
  • The High Trading Point
  • The Low Trading Point
  • Whether the candle finished Positive or Negative

This is an important technical analysis tool, particularly on the daily and weekly charts.  Candlestick charting is most effective when it is used in combination with other tools.  At Company Invest, we use moving averages, support and resistance areas, trendlines, volume analysis, chart patterns, momentum indicators, oscillators, and other tools.  But when you add candlestick charting to the analysis, your signals become more powerful.

In coming Company Invest posts, we will examine candlestick charting in greater detail, and we will present bullish and bearish reversal patterns, as well as other important candlestick charting buy and sell signals.

Stay tuned for more information