One of the most effective ways of measuring financial data and information is through the analyzing of charts. Charts disseminate information critical to making future financial decisions and help a trader or a broker in going for the most profitable option. The candlestick chart is one such chart that makes presenting, analyzing, and evaluating stock prices so much easier and financially advantageous.
A candlestick chart is a tool that combines information from various time periods and joins them into one bar. This bar includes the opening, closing, lowest, and highest values for each required time period.
Typical Candlestick Chart Formation
So how do your read a Candlestick Chart? Well, A typical and most basic form of the candlestick looks like the image presented below:
The empty or filled part of the candlestick is called “the body” (also known to traders as “the real body”). The lengthy thin lines over and beneath the body serve to show the high/low range and are called “shadows”.
The high value is represented by the top of the “upper shadow” and the low value by the bottom of the “lower shadow”. If the stock closes greater than its opening price, an empty candlestick is depicted with the lower part of the body showing the opening price and the upper part of the body representing the closing price.
On the other hand, if the stock closes at lesser than its opening price, a filled candlestick is drawn with the top of the body demonstrating the opening price and the bottom of the body serving as the closing price.
This figure and explanation basically summarize the gist, elements, and formation of the candlestick. All the above mentioned factors make up the candlestick that proves to be of immense help to the traders and numerous organizations.
Benefits of Candlesticks Charts
Since the 90’s, the trading and business world have seen a major boom in the use of candlesticks to analyze and interpret financial stance and data.
This phenomenon is so because of the various benefits of making use of the Japanese candlestick. Some of the top advantages of using the candlestick chart are as follows.
- Understandability: The chart is one of the easiest financial tools to understand. Traders ranging from the novice types to seasoned professional can quite comfortably evaluate and make meaning of the information presented in a candlestick chart.
- Valuable Information: The candlestick chart provides information regarding a stock price and its movements over a period time that most other tools do not. This helps in the implementing and making of the final decision by the traders.
- Market Insight: These charts possess the capability to provide unique market insight. Unlike many other financial indicators, candlestick charts show the force and reason behind a change in price and behavior of a stock.
- Enhance Western Analysis: The merging of this Eastern tool with other Western indicators enable traders to make decisions better than ever before.
In conclusion, the Japanese candlestick has helped traders make positive financial decisions regarding buying and selling of stocks.
The information present in the charts is unlike any other. The easiness and readability of the chart make it a must use for traders.