Many of you who have seen a stock chart have probably seen a chart that contains multiple red and green boxes with lines coming off the ends. This is known as a candlestick chart and is the most common type of chart used by traders. A candlestick is a bar that represents a stock price’s opening price, closing price, high price, and low price.
An opening price is what the stock price initially starts at the beginning of a period while a closing 4 price is what the stock price ends at the ending of a period. If a candlestick is green, that means the bottom of the bar is the open and the top is the close, essentially meaning the share price increased. If a candlestick is red, that means the bottom of the bar is the close and the top is the open, essentially meaning that the stock price decreased
The slim bars that come off the top and bottom of the candles are called wicks. The top wick is the highest a share price sold for and the bottom wick is the lowest a share price sold for during a period of time. You can see an example of this in the picture given. Candlesticks are a home to many patterns that traders use to determine the direction of a stock’s price and we will get to that later on in the paper.
Candlesticks often follow patterns that can help an investor determine which direction a stock is going to move. Recognizing these patters as they form can be an important part of your strategy by allowing you to buy at a low part of the pattern and sell at a high part.