Candlesticks: Possibly the most Commonly used Trading Chart
Candlestick chart analysis is regarded as the simplest and most effective methods of technical analysis for currency trading as well as stock trading. There exists a number of types of charts such as line and bar however candlestick is popular for traders
History Of Candlestick Charts
Just like the name says, Japanese candlestick charts got its start in Japan in the 18th century. That should have been a clue as soon as you notice some of the names attributed to candlesticks like the doji and marubozu
It is commonly accepted that candlestick charts were developed by a commodity trader in Japan named Mr. Homma who was actually a rice trader. Earlier, simple line charts where used to track commodity closing prices. A candlestick chart gave traders an easy way of plotting more variables while remaining inside a 2 dimensional chart.
Although it is true bar charts show the high, low, open and closing prices, candlestick charts, due to their appearance, candlesticks really are far easier to use. A quick view of the chart will tell you if it was a bullish session (green candle) or bearish session (red candle).
Mr. Homma’s outstanding success as a trader inspired other Japanese commodity traders to embrace his analysis tool and in the early 20th century, it was introduced to the American stock market by Charles Dow, the founder of the Wall Street Journal and co-founder of the Dow Jones company.
What Is A Candlestick
A standard candlestick possess a block which is the body of the candle, plus vertical lines known as shadows or wicks that stick up and down from the body of the candle. The extreme high price of the day is shown by the upper shadow and the lowest price traded is revealed by the bottom shadow.
The bottom and top of the candle body marks the opening and closing prices in either order. Interesting enough, these candlesticks originally showed white on a positive day and black on a down day. You are likely now see other colors used, e.g. green or blue for a postitve session and red for a down session.
In a case where there is some coinciding of prices and the open, close, high and low are not all different, the candle may look slightly different.
Here are some examples:
Doji – period with an equal opening and closing price, looks like a cross.
Marubozu – period when the opening price was the low and the closing price was the high (white marubozu) or vice versa (black marubozu). Has a candle body block only, with no shadow sticks top or bottom.
Candlestick Chart Analysis In Real Time Trading
Any period of time can be displayed by candlesticks. Generally, day traders make use of the five or fifteen minute chart while swing trading and position traders use a lot longer time periods. Candlestick patters are often utilized to show prospective trends, breakouts and reversals in the market. Traders usually use other technical indicators such as a moving average alongside candlesticks when coming up with trading decisions.
Trading decisions in the live market usually have to be made extremely fast. The colored blocks of candlestick analysis help traders to view movements and reversals at a glance avoiding mistakes.
