Technical Analysis (Candlestick Chart)

What is a Candlestick Chart ?

A candlestick chart is a style of bar-chart used primarily to describe price movements of an equity over time.

It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. It is most often used in technical analysis of equity price patterns. They appear superficially similar to error bars, but are unrelated.

History of Candlestick

Candlestick charts are said to have been developed in the 17th century by legendary Japanese rice trader Munehisa Honma. The charts gave Honma and others an overview of open, high, low, and close market prices over a certain period. This style of charting is very popular due to the level of ease in reading and understanding the graphs. Since the 17th century, there has been a lot of effort to relate chart patterns to the likely future behavior of a market. This method of charting prices proved to be particularly interesting, due to the ability to display four datapoints instead of one. The Japanese rice traders also found that the resulting charts would provide a fairly reliable tool to predict future demand.

Layout of Candlestick

Candlesticks are usually composed of the body (black/red or white), an upper and a lower shadow (wick). The wick illustrates the highest and lowest traded prices of a stock, and the body the opening and closing trades. If the stock went up, the body is white, with the opening price at the bottom of the body and the closing price at the top. If the stock went down, the body is black/red, with the opening price at the top and the closing price at the bottom. A candlestick need not have either a body or a wick.

Some Pattern of Candlestick

There are multiple forms of candlestick chart patterns, with the simplest depicted at right. Here is a quick overview of their names:



1 .White candlestick - signals uptrend movement (those occur in different lengths; the longer the body, the more significant the price change)

2. Black/Red candlestick - signals downtrend movement (those occur in different lengths; the longer the body, the more significant the price change)

3. Long lower shadow - bullish signal (the lower wick must be at least the body's size; the longer the lower wick, the more reliable the signal)

4. Long upper shadow - bearish signal (the upper wick must be at least the body's size; the longer the upper wick, the more reliable the signal)

5. Hammer - a bullish pattern during a downtrend (long lower wick and small or no body); Shaven head - a bullish pattern during a downtrend & a bearish pattern during an uptrend (no upper wick); Hanging man - bearish pattern during an uptrend (long lower wick, small or no body; wick has the multiple length of the body.

6. Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade (may be either a white or black body); Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade (no lower wick); Shooting star - a bearish pattern during an uptrend (small body, long upper wick, small or no lower wick)

7. Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns

8. Spinning top black/red - neutral pattern, meaningful in combination with other candlestick patterns

9. Doji - neutral pattern, meaningful in combination with other candlestick patterns

10. Long legged doji - signals a top reversal

11. Dragonfly doji - signals trend reversal (no upper wick, long lower wick)

12. Gravestone doji - signals trend reversal (no lower wick, long upper wick)

13. Marubozu white - dominant bullish trades, continued bullish trend (no upper, no lower wick)

14. Marubozu black/red - dominant bearish trades, continued bearish trend (no upper, no lower wick)

Personally i use candlestick chart for technical analysis. With a few combination of the candlestick, you will be able to predict up to 90% accurate the way your stock will react. The above 14 pattarns are simple and basic stuff of candlestick. There are plenty of combination of candlestick that will help you to analysis the stock.



Example when a solid white small candle follow by a large soild red/black candle(bearish englufing), the stock will normally go downward or go sideway.


Personally i love candlestick chart as it's not only providing 4 information by itself and when it combine with a few candles, they tell you more information. It is eyesight/user friendly for most of the people as compare to line or bar charts. Hope that the brief introduction on candlestick chart (technical analysis) will open up your world into trading =)