Introduction to Candlestick Charts

What are candlestick charts? If you know something more about technical analysis, you probably know, that candlestick chart is type of chart used to describe price movement of an equity over time. In technical analysis in western world are more popular classic bar-charts than candlestick charts. Differences between these two I will show and describe later. One from reasons that candlesticks are not so popular between traders in western world is in my opinion that candlestick charts were introduced to them only roughly 20 years ago.

Candlestick charts have been developed in the 18th century by Japanese rice traders, that were trying to predict future prices of rice. Charts illustrated price movement based on open, high, low, and close market prices over a certain time period. You can see differences between bar charts and candlestick charts in the pictures bellow.







One from the main points of using candlestick charts is that they have their own chart patterns, that would be not so obvious in other types of charts. These chart patterns are tested by centuries of their using, what I think is enough solid proof of credibility of this method. The amount of data displayed in candlesticks is exactly the same as in bar charts, but the difference is in visual presentation and interpretation. Candlestick charts can be used for all trading time frames and with all investment vehicles like stocks, forex, commodities or options. Repeating patterns are not 100 percent accurate, but for profitable trading they don't have to be and many fortunes have been made by using this methodology.

4 comments:

Anonymous said...

which candlestick pattern is your favorite? and why?

Option Trader said...

Probably my the most favorite candlestick pattern is doji, mainly because it's simple to identify this candlestick pattern and also because of other reasons that I will describe later in my posts.

zoe said...
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