Understanding Candlestick Components

You can’t trade and invest effectively by using candlestick charts unless you understand candlestick patterns, and you may have a very hard time understanding those patterns if you aren’t familiar with basic candlestick construction. Candlestick charting starts with the knowledge of what it takes to make a candlestick and how changes in that basic information impact a candlestick’s appearance and what it means. For starters, you need to know what goes into creating a candlestick’s wick (the thin vertical line) and its candle (the thick part in the middle).

The following four pieces of information are combined to create a candlestick:

bullet Price on the open: The price at which a security opens on a given period is the first piece of information used in creating a candlestick. Depending on whether the security’s performance is bullish or bearish, the opening price corresponds to either the bottom edge of a candlestick’s candle or the top edge.

Candlesticks that represent bullish price action appear white on a chart, and candlesticks that represent bearish price action appear black.

bullet High price: The highest price that a security reaches during ...

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