What are Candlesticks?
Put simply, candlesticks are a way of communicating information about how price is moving. Candlestick charts are available on trading platforms for all assets individuals can trade on the platforms.
This chart shows price on the right (vertical) axis, and time on the bottom (horizontal) axis. Moreover, the chart is made of bars that have little lines stemming from the top and the bottom; these are known as candles. The candle conveys four pieces of information:
- The open price
- The close price
- The high price
- The low price
Candles refer to that information for a specific unit of time. For instance, the chart above is a daily chart; each chart represents one day. And thus, each candle constitutes the open, close, high, and low price for that given day. The horizontal axis at the bottom of the chart can be used to understand which day corresponds to which candle. Below is an image that illustrates how those four pieces of information the open, low, high, and close for a given period of time are visualized in the context of a candle:
The wicks, or shadows, are the thin lines that go outside the rectangular body of the candle. They represent the high and the low price during that time period. The color of the candle is also significant in understanding whether the open price was higher or lower than the close price. If the candle is red, or denoted as bearish in some other manner, this means that the open price is lower than the close; and the opposite is true if the candle is green, or denoted as bearish.
Consider the candle above. The absolute highest point on the candle, the top of the upper line above the rectangular body, is the high price; the absolute lowest point shows how far price fell during the time period in question. The top of the candle is the opening price of the time period, while the bottom of the candle is the closing price. Thus, from this candle, we see that price rallied and fell from its open but bears were ultimately able to push it lower than the open, while bulls came in before the close to push price up a bit.