We have seen some of the charts that are generally used for technical analysis by various traders and analysts. Here we will general1y be referring to the Candlestick charts. It would, therefore, be befitting to take a slightly more detailed view of the candlestick charts and to dissect the various parts of the candle and discuss each in detail.
Exhibit A, below, shows a slightly enlarged view of the candlestick chart for the readers to get themselves familiarised with:
GRAPH CANDLESTICK CHART If you observe closely, you shall see that there are two distinctly separate colored candles on the chart; you shall also see that these candles are of different lengths and most of them have different sizes of wicks, while some are also without wicks. All these facets of the candles are extremely significant and give some information about the price movement during that time period. To understand the information provided by each candle stick, we shall dissect an individual and see what each of these parts tell us.
THE CANDLESTICK: In a candlestick chart each time interval under consideration is represented by a single candle. Thus, in a five minute chart, each five minute interval will be represented by a single candle, while in a weekly or a monthly chart, each weekly or a monthly interval, respectively, will be represented by one candle.
The candlestick chart is generally presented in two sets of colors. The candles are presented either as black and white or as red and green, respectively.
The black or the red candle implies that the overall movement of the prices was downwards during the time; while the green or the white candle signifies that the overall movement of the prices was upwards, during the time interval under consideration.
A candle can generally be divided into two parts: a) the real body and b) the wick. Most of the times, we'll see candles with both of these parts, but sometimes we do find one of the two parts to be missing either partially or completely. In Exhibit A, AD is the total length of the candle. AB and CD are the upper and the lower wicks, while BC is the real body of the candle.
The real body (BC or CB) tells us the net price move during the time interval under consideration, while the total length of the candle (AB or BC) gives us information about the total price range during this time period. Being a white candle, we already know that the net price movement was upwards during the time.
Combining this information derived from the color of the candle with the fact that the real body BC (or CB) tells us about the net price move during the time interval, we can easily derive that during the time interval, the price opened at C and closed at B, while at some point during this time interval, it touched its low at D and its high at A.
In the nomenclature of the traders, the candle stick, thus, gives information about the Open, the High, the Low and Close of the time period under consideration.
Now let us examine a black candle stick for a more thorough comprehension of the details hidden in a candle stick. In Exhibit B, once again AD is the total length of the candle, signifying the total range of the price during tthe specified time.
BC is the real body, signifying the net price move during the time and because of its black color, we know that this net move was downwards, starting from B and ending at C. AB and CD are the upper and the lower wicks, providing the information that during the time, prices touched a high at A but could not maintain it and was pushed back down by the sellers (also called 'Bears') to below B. It also tells us that during the time, the prices touched a low at D, but were pulled back up by the buyers (also called 'Bulls'), before it closed at point C.
A white or a green candle is also called a 'Bullish' candle, signifying that during that time the bulls had an upper hand; while a black candle is also sometimes called a 'Bearish' candle, signifying that the Bears had the best of the Bulls, during that time period.
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