Many traders find candlestick charts easy to read and to interpret. They know, for instance, that a Marubozu indicates that either buyers controlled the market in a particular share or sellers did, and that an upper wick considerably longer than a lower one shows that buyers dominated, driving the prices higher. It takes a while to learn to read a candlestick chart at a glance, but, when mastered, they make a useful tool in the Technical Analysts armoury.

Occasionally you will see a candle that does not have a wick, either above or below the body of the candle. This is called a Marubozu and it indicates that the price of the stock never went outside the range set by the opening and closing prices. Either the peak price was the opening price and the low price was the closing price (in the case of a black candle) or vice-versa (for a white candle).

Reading a Candlestick Chart at a glance

Several white candles in a row indicate stock prices that ended each day consistently higher than their opening values – a rising trend. Bull markets are characterised by white candles. Similarly, a series of black candles represents a generally falling (bearish) market. The lengths of the wicks gives an indication of the volatility of the share price. If the wicks are comparatively long, then the price fluctuated wildly. You can also glean information from the general shape of the candle itself. For instance, if the body of the candle is quite short, but it has a long lower wick, then during the day, the price of the stock fell rapidly before rallying to close near its opening value.

Each day on a candlestick chart is represented by a symbol resembling a small candle (hence the name): a vertical rectangle that can be black or white with a small vertical line sticking out of the top, the “shadow” (or “wick” to persist with the candlestick metaphor). Unlike real candles, there is another vertical line or wick sticking out of the base as well! The vertical axis on a candlestick chart represents share price, so the tops and bottoms of the rectangle and wicks represent price values.

The four elements represented on a Candlestick Chart

The stock starts each day at a particular price, called the opening value, and ends each day at a (possibly) different value, the closing value. During the day it may reach a peak price above the opening value or drop to a minimum price below the closing value, the high and low values respectively. These are the four elements represented by each candlestick on a candlestick chart.

What are Candlestick Charts?

Candlestick charts are a graphical way of expressing the movement of share prices from day to day. Each entry in the chart represents a single day but encodes information about the behaviour of the price on that day. They are sometimes known as Japanese Candlestick Charts because they are supposed to have been developed in Japan during the nineteenth century as a way of tracking rice prices.