There are various types of charts that can be used for doing a technical analysis of a security listed on the stock exchange. One such chart is the Candlestick Chart which is widely used for online stock trading to understand the four key price points of an asset.
What is a Candlestick Chart?
It is a financial chart used to depict the movements of a security based on its past patterns.
Candlesticks are very useful in trading as they indicate the most important price points of security, namely open, close, high, and low.
The wide or rectangular part of the candlestick is known as the real body of the chart and represents the price range of the security by linking its open and close price.
The high and low price points of a trading session are depicted via the thin vertical lines observed above and below the real body of the chart.
Which are the Bearish and Bullish Candles?
When the real body is filled with either black or red, it represents that the open price exceeds the close price and thus represents the bearish candle. This means that the prices are being pushed down by the bears by the end of the trading session.
When the real body is either empty or filled with white or green, it represents that the security’s closing price is higher than its opening price and thus represents a bullish candle. This means that the prices are being pushed higher by the bull by the end of the trading session.
The bullish candle (empty, green, or white) represents strength, and the bearish candle (black or red) represents a weakness in the security price. As a trader, you must ensure that whenever you are selling a security, it is a red candle day, and whenever you are buying, it is a green candle day. It is essential for you to note that there could be minor discrepancies or variations to the existing patterns depending on market conditions.
Candlesticks Charts V/S Bar Charts
Essentially, both candlestick charts and bar charts show the same information: the critical price movements of a security. Which one you wish to use depends on your preference in terms of the visual appeal of the chart. If you are someone who prefers neat and clear charts, you should go with bar charts. However, if you are interested in knowing the thickness of the real body or are looking for a chart with a higher visual appeal than the bar charts, you must choose coloured candlesticks that can better highlight the difference between the open and close price points.
Conclusion
Candlestick charts are an efficient way of tracking the critical price points of securities for online stock trading. Also, they are highly customisable. They present you with a lot of information and knowledge, and are quite easy to understand.
