Candlestick Charting Explained for Candlestick Technical Analysis
Candlestick charting for technical analysis is similar to a stock bar chart, but the candlestick chart differs in the way it is visually constructed. Like the stock bar chart, the candlestick chart also has a thin vertical line that shows the period's trading range. The difference is that in a candlestick chart, a wide bar is featured on the vertical line. The purpose of the wide bar is to illustrate the difference between the open and close. Also, like bar charts, candlesticks depend heavily on the use of colors to explain what has transpired during the trading period. However, a major problem with the candlestick color configuration is that different sites use different color schemes to represent the various shifts, so it is important to understand the candlestick configuration used at the chart site you are working with.
Standard candlestick charting technical analysis adheres to the following principles:
• On days where the price of the stock rises, the candlestick chart features two color constructs, where it has only one on the days when the price falls.
• The candlestick will usually be white or clear when the price of the stock is up and closes above the opening trade.
• The candlestick will usually be red or black, depending on the site, if the stock has traded down for the period.
• If the stock's price has closed above the previous day’s close but below the day's open, the candlestick will be black or filled with the color that the analyzer uses to indicate an up day.
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