Candlestick Chart

A Candlestick Chart
Starting in the 17th century, the candlestick chart pattern was used in Japan. Used by Charles Dow in 1900, it was the American trader Steve Nison who brought candlestick charts back to the awareness of western traders. Today, candlestick charts are one of the most common chart types.

Candlestick charts give information about the open, high, low and close prices and about the direction and magnitude of the price movement. It is this wealth of information and the distinct patterns that make the candlestick charts so interesting. The direction and movement of prices can be better perceived than by using bars. More complex candlestick patterns are often used as the basis for trading decisions.

The candlestick chart is the default chart type in Tradesignal. See also the chapter Chart.

Trading Information in Candlesticks

A Single Candlestick
The following information is available in the candle body and the shadows (the lines on bottom and top, also called wicks):
  • The high of the trading period, given by the end of the upper shadow.
  • The low of the trading period, given by the end of the lower shadow.
  • The open price, given by the body edge; either the bottom line in the case of an upwards development, or the top line in the case of a downwards development.
  • The close price, given by the body edge; either the top line in the case of an upward development, or the bottom line in the case of a downward development.
  • The direction of the price movement, given by the body color. Colors are usually red or black for falling and green or white for rising prices. The color settings can be changed.
  • The magnitude of the price movement, given by the length of the body and the shadows. The total length of a candlestick between the wicks is the difference between high and low.
More information can be gathered when several candlesticks are seen in context. Patterns of up to three candles are used to take a closer look at the price movements and their quality. For example, candles with bodies of the same color show more pronounced trends. Trading is often done based on a mixture of candlestick pattern analysis and other methods.

Two Simple Candle Examples

The Hammer

The hammer was named for its characteristic shape and the relationship to the Japanese sign for "hammering a floor". It has a large lower shadow with a small body on top, meaning a long downward movement stopped (and changed direction) during the trading period.

An ideal hammer has a small white body, showing that a bullish trend won out. The hammer should have no upper shadow, meaning that the close corresponded to the high in the trading period. In combination with analysis methods like moving average and other support signals, a hammer may be a good entry signal.

The Doji

A doji is a common candle that has a very small or no body at all. If the body is small, the color can be ignored. A distinct doji has very large shadows of similar size.

A doji signals that for all the trading over the day, the market and its forces are in equilibrium. The opening and close price are almost the same.

The doji itself only shows a kind of "frozen" state, of indecision. However, it gathers importance depending on the surrounding patterns. Price movements taking place after a doji often signal new trends or a trend inversion. Therefore, dojis are good support signals for resistance and support lines.

General Chart Properties

When the chart is active, you can edit the chart properties in the toolbox, for example the history length, the axes and legends.

You can also

Content-Dependent Chart Settings

In the properties of the displayed stock (symbol), you can find additional parameters. Besides the Standard Properties, you can find specific parameters for this chart type.

Candles Properties

Border Color - Here you can select a color for the border.

Show Frame - Here you can select whether the candle frame will be displayed or hidden.

Bullish Color - Here you can select a color and opacity for upward candles.

Bearish Color - Here you can select a color and opacity for downward candles.

Indicators and Strategies

In the indicator overview, you can find the indicator Candle Pattern which includes a long list of typical candlestick patterns to choose from. You can edit these patterns in the graph properties in the toolbox. The set pattern is displayed in the graph.

In the strategies overview, you can find strategies such as Candle Bearish Engulfing - Exit, Candle Big White Candlestick - Exit, and many more that you can apply to your candlestick chart.

Links and Books

Candlestick Charts in the Wikipedia