Candlesticks- The Basics

by Teresa Appleton

Learning to use indicators in the market that have worked consistently for hundreds of years can open the door to success for a trader.  Different types of charting tools can give a strong visual interpretation, one indicator to see market sentiment change quickly is candlesticks.  Learning how to see these signals and read the candlesticks can give you an advantage in any market condition.

Candlesticks have been around since the days of rice trading in Japan.  Steve Nison brought them to the US markets and has translated the Japanese chart reading tools into English.  The Japanese found candlesticks to be a very effective technical analysis tool and I hope after you try them you will agree and integrate them into your trading.  Candlesticks are made up of an opening price, closing price, the high of the time frame and the low of the time frame.  The opening and closing price form the body of the candlestick, while the highs and lows form the shadows/wicks on the candlesticks.  Shadows are often referred to as wicks or tails on the body.  But no matter what you call them they are showing us the extended range outside of the opening and closing price of the time frame you are looking at on any given chart.

White Candle (also called light candle)—

Black Candle (also called dark candle)–

Why use candlesticks for charting?

• Instant look for bulls or bears in charge of the color of the candle.
• Patterns setup.
• Early reversal signals, reversal candles listed below.
• Easier to see market pausing and indecision with spinning tops and narrow candles.

Many candlestick shapes tell something specific and the color also tells us about the price action on the chart.  All are based on price and they are available in any time frame for charting, from a 1 minute chart to daily or yearly chart.  The control of each movement, the strength by the size, the shape of the candle and placement in the move can determine the markets direction.  In addition to direction of the markets, patterns, trade management the candlesticks can give you an edge.

Upcoming Candlestick articles to watch for on Reversal candles #2 in a series of 4 articles.

Views Article #2, How to Understand Candlesticks- Reversal Candles