What is Candle Stick Chart in Stock Market?
Stock charts are a great tool for technical analysts in the stock market. In the previous article, we discussed the various charts that traders generally use. In this article, let’s explore more about candlestick charts in great detail.
What is candlestick chart?
A candlestick chart represents the price movement of a stock over a certain time period. This type of chart is quite popular among traders because they are easy to read and understand.
How to read candlestick chart
A candlestick chart includes the open, close, high and low price of a stock over a specific time frame. This time frame can be fixed by the trader as per his requirement.
For example, if the time limit is fixed at ten minutes, then a new candlestick is created in the graph after every ten minutes.
Then, by simply looking at the chart, the trader can find out all the four major price movements of the stock over a particular time frame.
Candlestick chart analysis
It is important that candlesticks should not be observed in isolation. The context (past patterns) is very crucial when to comes to candlestick analysis. The trader must observe the previous candlesticks and observe how they have changed over time.
Has the body of candlestick become larger or smaller? What about the wicks (shadows). How have they changed?
These are the questions the trader must ask himself as he analyses the candlestick chart.
This is because when the real body of the candlestick becomes larger, it indicates an increase in momentum.
The body of the candle shows how much the price of the stock has changed over the duration of the time frame. A long white candlestick represents bullish strength while a long black candlestick represents bearish strength in the market.
Sometimes, it can happen that the bodies are really short and the shadows are large. This resembles the shape of a spinning top. Such a figure indicates that there was not a great amount of movement from the opening price to closing price.
However, the price of the stock has moved significantly during the specific period. It indicates high volatility.
Candlestick charts can offer great insights into the market sentiment. However, it is important to remember that this shouldn’t be used as the only tool to track the market.
A lot of traders use a combination of other technical analysis tools in order to get a better hold of market movement and investor sentiment.