Candlestick Definition
A Candlestick, within the context of cryptocurrency and blockchain, refers to a charting method that offers comprehensive data about price variations within a specified time period. Based on a technique developed in Japan in the 18th century for tracking the price of rice, a candlestick is represented by a rectangle (the body) signifying the opening and closing prices, flanked by lines (the wick/shadow) signifying the highs and lows.
Candlestick Key Points
- The candlestick methodology is a popular charting technique used in technical analysis.
- The ‘body’ of the candlestick represents the opening and closing prices.
- The ‘wick’ or ‘shadow’ represents price highs and lows.
- Green or white bodies denote increase in price, and red or black bodies denote decrease in price.
- This type of chart denotes not just price, but also momentum, strength, and investor sentiment.
What Is Candlestick?
A Candlestick chart is a useful tool for visualizing the emotions of the market, trends, and potential reversals. Each candlestick represents a specific time period and illustrates four main pieces of information: the opening price, closing price, highest price, and lowest price during that time period. Depending on whether the closing price was higher or lower than the opening, the body of the candlestick will be colored differently, usually green (or white) for a rise in value and red (or black) for a decrease in value.
Where Is Candlestick Used?
Candlestick charts are most commonly employed within the realm of financial and trading markets, particularly in the stock, forex, indices, commodities, and cryptocurrency markets. Traders utilize these charts for their technical analysis as it assists them in identifying market trends and potential reversal points based on price action.
When Is Candlestick Used?
A Candlestick is used during the process of analyzing market trends. As each candlestick represents a specific time period (which can vary from minutes up to a month depending on the chart settings), traders can observe price movements in various time frames which allows them to make informed predictions and decisions.
Why Is Candlestick Important?
Candlesticks are important as they offer a quick visual representation of the market activity for a certain time period, revealing important details like direction of price movement, volatility of the price, trader sentiment, and even possible market reversals. They allow traders to spot patterns and understand market trends, enabling more informed decision making.
How Is a Candlestick Created?
A candlestick is created using open, high, low, and close prices for a specific time period. The box part, or the body, shows the opening and closing prices. If the closing price is higher than the opening, the body is commonly color-filled (green or white). If the closing price is lower, then the body is often empty or filled with a different color (red or black). The lines, or wick/shadow, protruding from the body represent the highest and lowest prices during the same time period.
