If you’re new to candlesticks, here’s a quick primer:
What’s a candlestick?
A candlestick is a graphical summary of market price movements within a period of time. It can represent price movements that occurred over a period of 1 minute; 5 minutes; 15 minutes; 30 minutes; 1 hour; 4 hours; 1 day; 1 week; or 1 month.
Here’s what a candlestick looks like:
The thick portion is known as the real body, and the thin portions are known as the shadows.
So what does the real body and shadow tell us about how the market price moved?
First of all, remember that each candlestick represents how prices moved over a specific period of time. Let’s assume that the candlestick below represents price movement over a 1 hour period.
You may have wondered at this point why the candlestick is green. Most trading platforms will allow you to change the colour of the candlesticks on your charts, so it doesn’t really matter.
For the rest of this article however, I’ll use green to represent a bullish candlestick, and red to represent a bearish candlestick.
What’s a bullish/ bearish candlestick?
A bullish candlestick represents market prices that generally moved up over the period of the candlestick.
If you look at the 1 hour candlestick (above), you’ll see that the ‘close’ price is higher than the ‘open’ price. This means that in that 1 hour, the market price moved from the ‘open’ price, up to the ‘close’ price.
The only difference between a bullish candle and a bearish candle is where the opening and closing prices are located. For a bull candle, the closing price is always higher than the opening price. For a bear candle, the closing price is always lower than the opening price.
In this way, a candlestick chart basically displays a series of opening, closing, high and low prices over time: