Sunday, April 24, 2011

The Unintelligent Investor's Definition of the Week: Candlestick Chart

The Unintelligent Investor’s Definition on the Week: Candlestick Chart

Hey there,

Candlestick chart

Definition from A price chart that displays the high, low, open and close for a security each day over a specified period of time.

Unintelligent Investor’s explanation:

Has any of you guys used a candlestick chart? The most basic or charts is a line chart, where the lines are plotted according to the close of the day only. It looks something like this:

A candlestick chart offers you a lot more information than a simple line chart. As investopedia said, it displays the high, low, open and close in the chart. This is how a candlestick chart of the exact same company at the same time frame looks like.

And if we zoom into one candlestick, this is what it will show.

In most cases, a white candle stick means that the day ended higher than its opening price and if the candlestick is black, it means that the day ended lower. Some charts prefer to use green and red candles.

Candlesticks are very useful because they show you so much more information than just the closing price. Just by looking at it, you can see how high the price has reached today, or has ever reached and how low it has ever reached.

There are a lot of patterns and ways to interpret them but I cant get into them here because people write books about them. I think it is also very subjective and up to you to interpret yourself. For some people, it looks more like witchcraft and for some it is a science.

So this is just a very simple post to show you how a candlestick chart looks like, I really wanted to type some interpretations but I really don’t know how or where to start because it is really such a vast thing. I guess if you wanna discuss a certain way to use it leave me a comment or email and we can have a discussion there. I’m more than happy to hear from you.

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