An Introduction To The Candlestick Chart

The first use of a Candlestick Chart dates back to around the year 1850 by a Japanese Rice Trader.

As you can imagine, there has probably been some changes to the original methods used since this was so long ago. You can use the information I provide here as an introduction.

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This type of chart is comprised of the same data as an OHLC chart for a specific time frame: open price; high price; low price; and closing price.

candlestick formation

There is a vertical bar, or line, just as in a bar chart, but over this vertical line is a box.

The vertical line represents the range from the high to the low of the time period.

The box represents only the range from the opening price to the closing price for the time period displayed.

The box is green, white or not filled, if the closing price is above the opening price, and if the closing price is below the opening price the box is filled, usually red or black.

Because the line, or bar, represents the high to the low price range, it frequently extends beyond the box. These extensions of the line are often called "shadows" or "wicks and tails".

By looking at the top green candlestick, you can see that the stock opened at a particular price, say $10.00, and during the time frame this is representing the stock went lower than its opening price causing a line(shadow or tail), to extend downwards from the box.

The stock also went above the opening price during the time frame displayed, but the stock closed at a price that was lower than the high for the time frame, but higher than what it opened at. Because the stock closed higher than its opening price for the time period, the box is green.

Using the second red candlestick example, you can see that the stocks closing price was below its opening price, which caused it to be red, or sometimes shown as black.



candlestick chart

Many traders like using Candlestick Charts more than other types of charts because you can get an interpretation from a candlestick easier than say an OHLC chart.

The boxes on a candlestick chart are easier to see than single lines, or bars on other charts.

The candlestick chart above clearly shows buying pressure by using a green color, indicating from a glance that the closing price was higher than the opening price.

The opposite is also true. The red box shows that the closing price was below the opening price, or selling pressure.


Looking at a Candlestick Chart, you can quickly see volatility based on the height of the box and shadows. When you have stock that doesn't move much, or little volatility, you will notice a very narrow box and shadows.

There are many different sizes of boxes and shadows that can signify different things. Learning to decipher these differences is an art form and takes some studying.


What a Candlestick Chart does not show, is the order of events that occurred to form the candle. In other words, using the example below, just because a candle has a green box with shadows above and below it, does not mean that the stock opened and immediately went lower, and then went up the rest of the day, or time period.

candlestick sequence

The same stock could have opened and immediately went to the highs of the time period, only to fall below its opening price before going back up to close higher than it opened.

Sounds like a lot, I know, and it is. There are even names for the different shapes of boxes and shadows such as: Doji; Spinning Tops; Marubozu; Hammers; Shooting Stars; Hanging Man and more.

Find out about some of the applications of candlestick charting in this limited time complimentary video: Applications of Candlestick Charting 100 minute free video

You can also find out more about this free video here if you would like first: Applications of Candlestick Charting


If you take the time to learn more about Candlestick Charts, you will have a great tool to use in your trading or investing venture.

As with any type of chart, once you decide to use any particular one(s), it is best to learn as much as possible on that particular type to help give you the most benefit.




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