Wednesday, July 20, 2011

The Candlestick

The candlestick chart, a japanese invention, is a combination of the line-chart and the bar-chart. It is used to give the summary of how the financial instrument performed in a particular day. Technical analysis can be done using the candlestick.

The bar-chart being the body indicates the opening and closing prices of the financial instrument. In the classical case, it the body would either be black or white. Black indicating the opening price is the top of the bar and the closing price is the bottom of the bar. It means that the financial instrument closed lower. White indicating the opposite. That being the case, a person long in a financial instrument would want to have white bars. In modern times, the colors can be different, for instance red(closing lower) and green(closing higher).

The line-chart would indicate the highest point and lowest point in the trading day. It is a good indicator of how much the stock can fluctuate during the day.

Below is an example of a candlestick chart for practice. Do you notice which day the prices fluctuates alot?