Candlestick Chart

A candlestick chart is a type of financial chart used to show price movements over time. It is widely used for stocks, indices, commodities, currencies, and cryptocurrencies.

Each candlestick represents a chosen period, such as one minute, one hour, one day, or one week, and shows four prices:

• Open: Price at the beginning of the period
• High: Highest price during the period
• Low: Lowest price during the period
• Close: Price at the end of the period

The body shows the difference between the opening and closing prices. The thin lines above and below it, called wicks or shadows, show the high and low.

Charts commonly use green for a price that closed above its opening price and red for a price that closed below it, although colours can vary between platforms.

Reading a Stock’s Daily Price Movement

An investor in India is studying the daily candlestick chart of a listed company.

On one trading day, the stock:

Open: ₹100
High: ₹112
Low: ₹98
Close: ₹108

Because the stock closed above its opening price, the candle would normally appear green. Its body represents the move from ₹100 to ₹108, while the wicks extend to the day’s high of ₹112 and low of ₹98.

Suppose the next day forms a red candle with a long upper wick. This may indicate that the price moved higher but faced selling pressure at higher levels.

The investor would normally study this candle together with the broader trend, trading volume, and other price information rather than making a decision from one candle alone.

Candlestick charts originated in 18th-century Japan, developed by Munehisa Homma, a rice trader from Osaka. He used these charts to analyze daily rice market prices and investor emotions. The technique was later formalized and introduced to Western financial markets by Steve Nison in his 1991 book Japanese Candlestick Charting Techniques. Since then, candlestick patterns have become a cornerstone of modern technical analysis.