Candlestick charts are an effective way of visualizing price movements. In the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices.
Each candlestick represents one period (e.g., day, week) of data.
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There are two basic candlesticks:
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Three main parts of a candlestick are:
1. Upper Shadow: The vertical line between the high of the day and the close (bullish candle) or open (bearish candle)
2. Real Body: The difference between the open and close; colored portion of the candlestick
3. Lower Shadow: The vertical line between the low of the day and the open (bullish candle) or close (bearish candle)
The power of Candlestick Charts is with multiple candlesticks forming reversal and continuation patterns. EquityRT includes 51 candlestick patterns which are explained in detail on the Help pages.
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Because candlesticks display the relationship between the open, high, low, and closing prices, they cannot be displayed on securities that only have closing prices, nor were they intended to be displayed on securities that lack opening prices. If you want to display a candlestick chart on a security that does not have opening prices, I suggest that you use the previous day's closing prices in place of opening prices. This technique can create candlestick lines and patterns that are unusual, but valid. |
Suggested Reading:
Nison, Steven. Japanese Candlestick Charting Techniques. New York, NY: New York Institute of Finance, 1991.
Nison, Steven. Beyond Candlesticks. New York, NY: Wiley, 1994.