Candlesticks Explained

What it represents

Candlesticks are a type of price chart used in technical analysis to represent the price movement of an asset over a given period of time. They consist of a rectangular body with two thin lines called wicks, one at the top and one at the bottom. The body represents the opening and closing prices of the asset during the specified time period, while the wicks represent the highest and lowest prices achieved during that time. Each candle on the chart represents a specific period of time, which can range from just minutes to months.

Bullish Candle (the image above)

As we can see, the price of the stock starts at the "Open" value. At some point the price at its absolute highest (in your given timeframe) it hits the "high" point of the wick and hits the absolute lowest value at the "low" point on the wick. When your set time period ends the candle closes at whatever value it is. In the above example it closes higher to the open which makes the candle green making it a bullish candle. Now you can see how momentum and strength of movements works with candles.

Bearish Candle (image above)

As we can see, the price of the stock starts at the "Open" value. At some point the price at its absolute highest in your given timeframe hits the "high" point of the wick and hits the absolute lowest value at the "low" point on the wick. When your set time period ends the candle closes at whatever value it is. In the above example it closes lower to the open which makes the candle red making it a bearish candle. Now you can see how momentum and strength of movements works with candles.

How to interpret Bullish

Momentum of Bullish Candles

The size of the body of the candlestick can provide clues about the level of bullish momentum. The least bullish candle is where it barely closes above open yet falls from its highest point and its lowest point is the open. A small bullish candlestick has a small body and short wicks, which means that there was not much price movement during the time period. While a small bullish candlestick indicates a bullish sentiment, it does not provide a strong signal of bullish momentum on its own. A medium bullish or normal candlestick has a longer body than a small bullish candlestick, indicating that there was a moderate amount of price movement during the time period. This suggests a stronger level of bullish momentum than a small bullish candlestick, but traders should still be cautious and look for additional confirmation before entering a trade. A large bullish candlestick has a long body and little to no wick, which indicates that there was significant price movement during the time period. A large bullish candlestick provides a strong signal of bullish momentum and may indicate a potential trend reversal or continuation. Traders should still look for additional confirmation before entering a trade, but a large bullish candlestick can be a good starting point for analysis.

How to interpret Bearishness

Momentum of Bearish

The size of the body of the candlestick can provide clues about the level of bearish momentum. A small bearish candlestick or neutral has a small body and short wicks, indicating that there was not much price movement during the time period. While a small bearish candlestick indicates a bearish sentiment, it does not provide a strong signal of bearish momentum on its own. A medium or normal bearish candlestick has a longer body than a small bearish candlestick, indicating that there was a moderate amount of price movement during the time period. This suggests a stronger level of bearish momentum than a small bearish candlestick, but traders should still be cautious and look for additional confirmation before entering a trade. A large bearish candlestick has a long body and little to no wick, which indicates that there was significant price movement during the time period. A large bearish candlestick provides a strong signal of bearish momentum and may indicate a potential trend reversal or continuation to the downside.

Important Reminders

Just remember that candlesticks give a visual story of the price action. Ironically while this analysis might seem simple, candlesticks even just in trios can give a very interesting picture of what the security is doing. Try to understand how candles look and you will be very shocked about how fast you are able to apply these basic concepts and extrapolate them using the fundamentals of openings, closings and wick bodies that are explained above.