A Beginner's Guide to Candlestick Charts

A candlestick chart is a type of financial chart that graphically represents the price moves of an asset for a given timeframe. As the name suggests, it’s made up of candlesticks, each representing the same amount of time. The candlesticks can represent virtually any period, from seconds to years.

While candlestick charts could be used to analyze any other types of data, they are mostly employed to facilitate the analysis of financial markets. Used correctly, they’re tools that can help traders gauge the probability of outcomes in the price movement. They can be useful as they enable traders and investors to form their own ideas based on their analysis of the market.

The following price points are needed to create each candlestick:

Open — The first recorded trading price of the asset within that particular timeframe.

High — The highest recorded trading price of the asset within that particular timeframe.

Low — The lowest recorded trading price of the asset within that particular timeframe.

Close — The last recorded trading price of the asset within that particular timeframe.

Collectively, this data set is often referred to as the OHLC values. The relationship between the open, high, low, and close determines how the candlestick looks.

The distance between the open and close is referred to as the body, while the distance between the body and the high/low is referred to as the wick or shadow. The distance between the high and low of the candle is called the range of the candlestick.

Being able to read candlestick charts is vital to almost any investment style, learn different candlestick patterns and you will be surprised how accurate they are.