![Candlestick chart scheme 01-en](https://upload.wikimedia.org/wikipedia/commons/9/92/Candlestick_chart_scheme_01-en.svg)
A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a
security
Security is protection from, or resilience against, potential harm (or other unwanted coercive change) caused by others, by restraining the freedom of others to act. Beneficiaries (technically referents) of security may be of persons and social ...
,
derivative
In mathematics, the derivative of a function of a real variable measures the sensitivity to change of the function value (output value) with respect to a change in its argument (input value). Derivatives are a fundamental tool of calculus. F ...
, or
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
.
It is similar to a bar chart in that each candlestick represents all four important pieces of information for that day: open and close in the thick body; high and low in the “
candle wick
A candle wick is usually a braided cotton that holds the flame of an oil lamp or candle. A candle wick works by capillary action, conveying ("wicking") the fuel to the flame. When the liquid fuel, typically melted candle wax, reaches the flame ...
”. Being densely packed with information, it tends to represent
trading patterns over short periods of time, often a few days or a few
trading sessions.
![Candlestick Chart in MetaTrader 5](https://upload.wikimedia.org/wikipedia/commons/3/3c/Candlestick_Chart_in_MetaTrader_5.png)
Candlestick charts are most often used in
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...
of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period. They are visually similar to
box plot
In descriptive statistics, a box plot or boxplot is a method for graphically demonstrating the locality, spread and skewness groups of numerical data through their quartiles. In addition to the box on a box plot, there can be lines (which are ca ...
s, though box plots show different information.
History
Candlestick charts are thought to have been developed in the 18th century by
Munehisa Homma
(also known as Sokyu Honma or Sokyu Homma and sometimes called the God of markets ; 1724–1803) was a rice merchant from Sakata, Japan who traded in the Dōjima Rice Exchange in Osaka during the Tokugawa Shogunate. He is sometimes considered to ...
, a
Japanese
Japanese may refer to:
* Something from or related to Japan, an island country in East Asia
* Japanese language, spoken mainly in Japan
* Japanese people, the ethnic group that identifies with Japan through ancestry or culture
** Japanese diaspor ...
rice trader. They were introduced to the Western world by Steve Nison in his book ''Japanese Candlestick Charting Techniques'', first published in 1991. They are often used today in stock analysis along with other analytical tools such as
Fibonacci analysis.
In ''Beyond Candlesticks'', Nison says:
However, based on my research, it is unlikely that Homma used candle charts. As will be seen later, when I discuss the evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in Japan (in the late 1800s).
Description
The area between the open and the close is called the ''real body'', price excursions above and below the real body are ''shadows'' (also called
''wicks''). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades.
The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick. The range is calculated by subtracting the low price from the high price.
If the asset closed higher than it opened, the body is hollow or unfilled, with the opening price at the bottom of the body and the closing price at the top. If the asset closed lower than it opened, the body is solid or filled, with the opening price at the top and the closing price at the bottom. Thus, the color of the candle represents the price movement relative to the prior period's close and the "fill" (solid or hollow) of the candle represents the price direction of the period in isolation (solid for a higher open and lower close; hollow for a lower open and a higher close). A black (or red) candle represents a price action with a lower closing price than the prior candle's close. A white (or green) candle represents a higher closing price than the prior candle's close. In practice, any color can be assigned to rising or falling price candles. A candlestick need not have either a body or a wick. Generally, the longer the body of the candle, the more intense the trading.
![Candlestick chart scheme 03-en](https://upload.wikimedia.org/wikipedia/commons/e/ea/Candlestick_chart_scheme_03-en.svg)
Candlesticks can also show the current price as they're forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time.
Rather than using the open, high, low, and close values for a given time interval, candlesticks can also be constructed using the open, high, low, and close of a specified volume range (for example, 1,000; 100,000; 1 million shares per candlestick). In modern charting software, volume can be incorporated into candlestick charts by increasing or decreasing candlesticks width according to the relative volume for a given time period.
Usage
Candlestick charts are a visual aid for decision making in
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...
,
foreign exchange
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
,
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
, and
option trading. By looking at a candlestick, one can identify an asset's opening and closing prices, highs and lows, and overall range for a specific time frame. Candlestick charts serve as a cornerstone of technical analysis. For example, when the bar is white and high relative to other time periods, it means buyers are very
bullish
Market sentiment, also known as investor attention, is the general prevailing attitude of investors as to anticipated Market trends, price development in a market. This attitude is the accumulation of a variety of fundamental analysis, fundamenta ...
. The opposite is true when there is a black bar.
A
candlestick pattern In financial technical analysis, a candlestick pattern is a movement in prices shown graphically on a candlestick chart that some believe can predict a particular market movement. The recognition of the pattern is subjective and programs that are u ...
is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends.
Heikin-Ashi candlesticks
Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way:
* Close = (real open + real high + real low + real close) / 4
* Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2
* High = max(real high, Heikin-Ashi open, Heikin-Ashi close)
* Low = min(real low, Heikin-Ashi open, Heikin-Ashi close)
The body of a Heikin-Ashi candle does not always represent the actual open/close. Unlike with regular candlesticks, a long wick shows more strength, whereas the same period on a standard chart might show a long body with little or no wick.
Relationship to box plots
Candlestick chart are similar to
box plot
In descriptive statistics, a box plot or boxplot is a method for graphically demonstrating the locality, spread and skewness groups of numerical data through their quartiles. In addition to the box on a box plot, there can be lines (which are ca ...
s. Both show maximum and minimum values. The difference between them is in the information conveyed by the box in between the max and min values.
References
{{technical analysis
Financial charts
Japanese inventions
de:Chartanalyse#Candlestick-Chart (Kerzenchart)