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Construction of Candlesticks

 

 

 

 

 

 

All stocks/markets/currencies/commodities that are traded on open exchanges around the world have four price points associated with them everyday. They are

  • Open

  • Close

  • High

  • Low

 

The Japanese found long ago that utilizing all these price points on a chart gave them more information about the internal dynamics of that trading entity. The line chart, which uses only the closing prices of the day, is limited in the information it conveys to the trader. The Japanese wanted to know what occurred during the entire day. If the stock was in an uptrend, how strong is the force of the bulls each day? Similarly, in a downtrend, how strong were the bears? What happened to the market as it approached resistance/support areas? Theses questions could not be answered by line charts alone. So they devised the Candlestick charts. The following figures show the construction of the candles themselves.

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  • When the stock closes higher than where it opened:

  • When the stock closes lower than where it had opened:

  • When a stock closes at around the same price it had opened:

This formation is called the Doji and is described in our signals section in detail.

 

 

Readers should also look at the various candle formations and their analysis here.

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