Candlesticks: Indicators of the stock market

In stock markets, there is a special significance of charts and graphs for the purpose of trading. Daily traders which are also known as intraday traders especially use these graphs and charts vociferously. Among all graphs and charts, the candlestick pattern is the most famous one. The main reason for its vast popularity is its simplicity, these are relatively simple to read and comprehend in comparison to other charts and graphs such as line charts, bar charts, etc.

Candlestick chart:

By structure, a candlestick chart consists of candles in two different colors red and green. The sticks are rectangular in shape. The candlestick being green signifies that are more trades compared to yesterday whereas the red candlestick signifies closing price today being lower than the opening price. There are various parts in a candlestick chart, some of which are listed and briefly explained below:

  • Open: It is the price at which a stock is traded for the first time in a day when the market opens. Open usually is represented by the uppermost or down most of the body of the candlestick.
  • High: It is the highest traded price that the stock achieves on a particular day. It is indicated by the top of the shadow that occurs above the candlestick body. In case of a stock only falls after the opening then the opening price is the high of the stock and there is no formation of upper shadow.
  • Low: It is the price at which stock is traded for the minimum at the day. It is indicated by the down most of the shadow which occurs below the candlestick’s body. This is the deciding factor for the color of the candlestick. If the closing price of the last day is above the opening price the next day then the candlestick is green. If it is below then the candlestick is red.
  • Close: It is the price at which a stock is traded for the last time on a day. It is usually represented by the top or bottom-most part of the candlestick.
  • Range: It is the difference in price between the uppermost and lowermost shadow. The range is for a specific time interval which is in turn represented by a candlestick.

Employability of candlesticks:

Mainly candlesticks are used for daily trading that is intraday or even scalp trading sometimes. The patterns formed by candlesticks can be interpreted to identify short-term trading opportunities. However, traders of different kinds use these trading charts in different ways. The massive use of candlestick chart is also witnessed in highly volatile markets as it can present the abrupt change in trend very comfortably, hence giving a pretext of change in prices and the trader’s can sell and avoid the losses.

Conclusion:

Studying carefully and examining the facts and details mentioned above, we come to realize the sheer importance of the candlestick pattern, its massive employability in highly volatile markets, vociferous use by the scalp and intraday traders, etc. You need to master candlestick if you want to be a good trader.

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The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.