Home Finance What is Candlestick ,How to read Candlestick chart?

What is Candlestick ,How to read Candlestick chart?

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Hey friends! Today we are going to talk about candlestick charts Reading candlestick charts is a basic area of technical analysis of stocks. It is the first step of technical analysis The meaning, usage, readability, and information available through candlestick charts is the topic for today. We will talk about all these things Now, what is a candlestick?

What Is a Candelstick Chart ?

Everybody knows this is a normal candle(on the left side) On the right side is a stock market candlestick with a wick on both the sides. Today we will learn the actual meaning of candlestick in the stock market. Also, I will guide you on ‘how to read candlestick fort stock market analysis’ Before learning about the stock market we will first discuss an important concept which is, market sentiment.

candelstick pattern for stocks

There are two types of market sentiment namely,

  • Bullish and
  • Bearish
  • Market sentiment is termed as Bullish when there is a general rise in stock market prices.
  • While whenever there is a general fall in stock market prices,
  • Market sentiment is termed as Bearish. I will slowly and gradually explain its usage.

Now let’s talk of Candlestick charts. You might be aware of what are Line diagrams? Candlestick chart is an improved version of the Line diagram.

Now, what are the Line diagrams?

Suppose you have closing prices of a particular stock for 5 trading days. As follows, on the first day, Rs.120, then Rs.150, Rs.170, Rs.160, and Rs.190 on the fifth day If you plot these points on a normal graph paper and then draw a line, then it will look like a Line diagram. The Closing prices for 5 days which are- Rs.120, Rs. Rs150, Rs170, Rs160, and Rs190 are plotted on a graph paper and then joined through a line This is called a Line diagram. So what is the problem over here? The problem is that this overlooks 3 major aspects It does not depict stock’s opening and closing prices on a day. Also, the information on the highest and lowest rates is not available. All these things are told by a candlestick chart We can see that this chart only gives information regarding the closing prices of the stock On the other hand, the Candlestick chart gives four types of information for every day, namely,

  • Opening,
  • Closing,
  • Highest and
  • Lowest price.

candelstick pattern for stocksNow let’s talk about its component and way of reading it. i.e., the way of reading the details of the chart. We have two types of candlesticks, namely-

  • Red and green.

Green Colored Candelstick

First, we will talk about the Green colored candlestick, which is exhibits positivity. So this is a Green colored candlestick which has a wick at both top and bottom. The line should not be crooked. Now not building more suspense, I will explain this candlestick. The bottom point denotes the opening price on a particular day, While the top point denotes the closing price And the wick at the bottom this denotes the lowest price of the day. While the wick at the top denotes the highest price Now, look at this diagram again.

bearish candelstick pattern

Let’s take any candlestick. Let’s talk about this one(attached pic above)Over here on the left side, the prices are mentioned. I have zoomed out the chart to make it easy for you to understand it. Over here on the left side, the prices are mentioned. This(see figure) denotes the opening price of the stock, This(watch figure) denotes the closing price of the stock. The wick at the bottom denotes the lowest price of the stock on that particular day. While the wick at the top denotes the highest price of the stock. The middle part is known as the body of the candle And these lines(watch figure) are known as wick or shadow. Hence we have two things one this body and the other is wick/shadow. The lowest portion of a candlestick is the opening price, and the highest portion is the closing price of the day. The highest portion of the wick is the highest price, and the lowest portion is the lowest price of the day.

Red Colored Candelstick

Now lets talk of the red-colored candlestick Here is the red-colored candlestick with a wick at both the ends. Now, let’s look into the difference between the two. The red-colored candlestick has the bottom portion as the closing price and the top-most as the opening price. There is no problem with the highest and lowest price as they are exactly the same green-colored candlestick. This(watch figure) is the lowest price on a particular day. While this(watch figure) is the highest price. This way, you can understand is your red-colored candlestick Over here, this(watch figure) portion denotes the opening price. While this portion(watch figure) denotes the closing price. Also, these are the highest and lowest price. I hope that this thing is clear to you.

Candlestick bearish, bearish candlestick

Now we understand one more thing with this. The green candle represents the bullish trend in the market. This is a bullish candlestick. While the red colored one is a bearish candlestick. The Bullish market has a tendency to raise the prices, while this is the opposite in the case of the Bearish market, i.e., fall in prices. So if your opening price is more than the closing price, then the market sentiment is Bearish. Hence the red colored candlestick is called a bearish candlestick.

On the other hand, if your opening price is less than the closing price, then the market sentiment is Bullish. It means that the prices have a tendency to rise.

Concept about Bullish Candelstick :

Let me tell you about one more interesting concept Bullish candlestick means that the buyer is in control If the price is rising, how can you say that buyer is in control? This thing is viewed differently in the stock market. I will explain this Whenever a stock’s price is rising it means that buyer is willing to purchase it. However, when the buyer stops buying the stock, the price will fall If the stock prices are rising and the buyer is still willing to purchase at a higher price, it depicts growth in the stock market. If the stock is brought even at higher prices, only then the stock market will grow further. This means that buyers are oblivious to the high stock prices and continue to buy stocks, leading to the market’s growth. The buyer is in control of the stock market. Hence the Bullish candlestick means that buyer is in control of the stock market. If the closing price is higher than the opening price, it means that the market sentiment is Bullish with the buyer in its control.

Bearish Candelstick concept :

The exact opposite of this case is in the Bearish candlestick as here the seller is in control of the market. I hope you have understood this thing. This was a concept of candlestick charts, which are of two types, namely Green( bullish) and Red( bearish ) candlestick. Green candlestick denotes that the closing price is higher than the opening price. While Red candlestick denotes that the closing price is lower than the opening price. Every candle has two wicks. The tip of the top-most wick depicts the highest price, while the tip of the bottom-most depicts the lowest price on any particular day.

There is one more thing to be noticed Over here(watch figure), a lot of candlesticks have only one wick. This(figure) Red-colored candlestick does not have a wick at the top. This means that the opening price is itself the highest price of the stock. So there is no point for the wick to be at the top. So if there is no wick at the top in this Red-colored candlestick, it means that the opening price is itself the stock’s highest price. Similarly, you can take an example of another candlestick, i.e., the one which does not have a wick at the bottom. This means that the closing price is the lowest price for the day of that stock.

The exact opposite for this in the case of a Green-colored candlestick. Suppose a case where there is no wick at the bottom; this means that the lowest price is the opening price of the stock on that day. The exact opposite of this is the case where there is no wick at the top. This means that the highest price is the closing price of the stock on that day. The lowest and opening price remains at the bottom of the candle. So this was all about the candlestick charts. This is how you read, understand and analyze the patterns of a stock price with the help of a candlestick chart.

Concluion

Candlestick chart gives four types of information for every day, namely, Opening, Closing, Highest and Lowest price of a stock. The middle part is called the body, while the top and bottom lines are known as wicks. Thank you so much. In the upcoming days, we will bring more insightful articles to become an intelligent investor. Happy investing!

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