Candlestick Chart

What Is a Candlestick Chart?

A candlestick chart is a type of financial chart used to track the price movements of an asset, like stocks or cryptocurrencies, over a specific period. Each candlestick on the chart shows the asset's opening, closing, high, and low prices in a simple, visual way. (Don’t worry, it will make sense in a minute!)

How It Works

• Candlesticks: Each candlestick represents a period of time (like a minute, an hour, or a day). The body of the candle shows the difference between the opening and closing prices. The wicks (the lines above and below the body) show the highest and lowest prices during that time.
• Colors: Candles are usually colored green (or white) when the price goes up (closing higher than it opened) and red (or black) when the price goes down (closing lower than it opened).
• Pattern Recognition: Traders use candlestick charts to spot patterns that might help them predict whether prices will go up or down next.

Example

Let’s say you want to find out about Bitcoin. You set the time to an hour, over 24 hours. You will see 24 candlesticks. Each candlestick will show the opening and closing price for Bitcoin, and the wicks the highest and lowest points the price reached during that specific hour. The first candlestick will show 0:00-01:00 hours. The second stick will show 0:01-0:02 hours and so forth.

You could set the time to be daily (i.e. 24 hours) over a 30 day period instead. Then each candlestick will show the opening and closing price for each day, and the wicks the highest and lowest price points on those days.

Imagine each candlestick as a tiny report card for a stock’s performance during a set time. If the body is green, the stock "earned a good grade" and the price went up during that period. If it’s red, it "didn’t do so well" and the price dropped. By looking at several candlesticks in a row, traders try to spot trends or patterns that help them make decisions about buying or selling.

Key Takeaways

• A candlestick chart shows the price movement of an asset over a specific time period.
• Each candlestick displays the opening, closing, high, and low prices for that time.
• Traders use candlestick patterns to help predict future price movements.

In short, candlestick charts provide a visual way to quickly see how prices are moving, making it easier for traders to analyze trends and make decisions.