Welcome to professorsavings.com, we teach finance basics. Today we will teach you about candlestick charts.
Hi I’m Rayfil Wong. We hope these investment concepts will help you be a better investor.
A candlestick chart marks a security’s price movement and offers an efficient way to gauge investor sentiment and possibly see patterns.
Growing up, I often go to the library and see seasoned investors create these candle stick with a rule and pen.
So let’s jump to the basics.
A stock’s chart has one candlestick for each day with its shape reflecting key information about trading activity.
The body of a candle extends between the open and close price. A long candle indicates large price movements while shorter ones reveal a more neutral stance toward the stock.
When the closing price is higher than where it opened, the body is white. It’s filled in with black when sellers push the price downward.
Each candle has wicks, referred to as shadows protruding above and below the body.
The lower shadow extends from the opening value to the day’s low price. The opposite goes for the upper shadow. These two offer valuable information to a stock trader.
For example, a short body atop a long, lower shadow indicates that sellers control trading for part of the day before conceding to buyers later in the session.
When candlesticks for several days of trading are pulled together in a single computer screen, the resulting chart can be a useful tool for the experience trader.
Experts look for a variety of patterns that hint at where overall sentiment where the stock is going.
However, candlestick charting cannot explain why the price moved in a certain direction nor can it provide a clear timeline of when the stock shifted up or down.