Candlestick charts
Candlestick charts are the most favoured chart type by traders, even though it offers the same four pieces of price data as a bar chart. What makes this chart type superior is the way it is displayed. When looking at a candlestick chart you will see the high and low of a price as the wicks and the body which displays the opening price and closing price. The body changes colour depending on the direction of the price, if the closing price is above the opening price the body will display as green, however, if the closing price is below the opening price the body turns red.
Why traders use candlestick charts
The main reason traders use this chart type is because it displays a more visual interpretation of the current market. It also makes it easier for new traders to interpret the market.
However, while the colours and changes in shape help with speedy interpretation, they can bring emotions (red = danger for example) which we want to eliminate from trading.
Let’s look at Apple again, this time on a candlestick chart, you will immediately see the increase in information.
- For traders, candlestick charts are the most popular type.
- Candles show the same information as a bar but include a body and wick so the open and close prices are given more weight vs the high and low.
- The colour of the body tells traders immediately whether it was a bullish or bearish period.
- With candlesticks, it is hard to get lots of data onto a chart and colour can bring emotions.
- There are pros and cons of each chart type, but once you’re happy with one just keep it consistent and don’t switch around.
