One of the more favored charts used by traders and investors is known as the candlestick chart. Essentially, it is like a bar chart and line chart all in one. It provides all the essential information, making it easy to read and interpret. A candlestick chart is considered to be superior when it comes to chart analysis and technical analysis.
The origins can be traced back to the town of Sakata in Japan. It was developed around 1850 by a rice trader known as Munehisa Homma, who is often regarded as the father of the candlestick chart. Through the years it may have gone through some modification, therefore becoming what we are familiar with today.
The way in which theses charts present their information is so simple that you do not need to be adept in this field in order to understand the signals. Anyone can utilize them, even your average investor does not need to be wholly dependent on a broker to get stock tips.
Two candles are normally shown; the data is derived by comparing the two candles against each other. For example, if the stock price closes higher than it opened at, a white candle is depicted. Similarly, if the stock closes lower than it opened, a black candle will denote this. A short candle means little price movement between, while a tall candle shows more intense buying or selling. The highs and lows of the stock price are represented by wicks or shadows at the top and bottom of the candle body.
A long candle without any shadows on the top or bottom is called a Marubozu. When buyers control the price from beginning to end, a white marubozu develops when the open price equals the low and the closing price equals the high. If it is the sellers who control the price from beginning to end, a black marubozu will form, signifying the open equals the high and the closing equals the low.
The Doji is an important signal to take note of. It occurs when the stock price at the open and close is the same or very close together, resulting in the candle body appearing as a horizontal line. The shadow’s length can vary, and the longer the shadows, the more significant the Doji becomes. This kind of pattern could indicate indecision and hesitation, which could be the signal of a change in the trend.
It is important to learn how to interpret all the patterns in a candlestick chart to get the most out of your trading experience.