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What is Candlestick Chart & Analysis in Stock Market? Know the basics of Stock Market #2

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  • What is Candlestick Chart & Analysis in Stock Market? Know the basics of Stock Market #2
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What is Candlestick Chart & Analysis in Stock Market? Know the basics of Stock Market #2

A candlestick chart represents the price movement of a stock over a certain time. This type of chart is quite popular among traders because they are easy to read and understand. Candlestick Chart & Analysis

  • Components of a Candlestick Chart

A candlestick offers a wide range of information in a simple manner. Each candlestick is composed of a body and wicks (thin lines extending above and below the body).

A typical candlestick looks like this:

Candlestick Chart Analysis, Candlestick Chart

  • A GREEN candlestick is formed if the close is above the open
  • A RED candlestick is formed if the close is below the open
  • The space between the open and close points is depicted as the ‘BODY’
  • The thin lines that extend from the top and the bottom are known as wicks or shadows
  • The top of the upper wick represents the ‘HIGH’
  • The bottom of the lower wick represents the ‘LOW’
  • How to Read Candlestick Chart?

A candlestick chart includes the open, close, high, and low price of a stock over a specific time frame. This time frame can be fixed by the trader as per his requirement.

For example, if the time limit is fixed at ten minutes, then a new candlestick is created in the graph after every ten minutes. Candlestick Chart & Analysis

Then, by simply looking at the chart, the trader can find out all the four major price movements of the stock over a particular time frame.

  • Candlestick Chart Analysis

It is important that candlesticks should not be observed in isolation. The context (past patterns) is very crucial when it comes to candlestick analysis. The trader must observe the previous candlesticks and observe how they have changed over time.

Has the body of the candlestick become larger or smaller? What about the wicks (shadows)? How have they changed?

These are the questions the trader must ask himself as he analyses the candlestick chart.

This is because when the real body of the candlestick becomes larger, it indicates an increase in momentum.

The body of the candle shows how much the price of the stock has changed over the duration of the time frame. A long white candlestick represents bullish strength while a long black candlestick represents bearish strength in the market.

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