What’s Japanese candlesticks?
We have assumed that you already know what a candlestick is. If this is your first encounter with candlesticks, you will find an explanation of what one is here.
The best way to understand a Japanese candlestick is by comparing it to a Western
bar chart. A candlestick has the same function as a bar chart. A bar chart tells us a
price range, an opening, a high, a low and a closing, for a given period. This period
can be as short as a few seconds or as long as a day, a week, a month, a year, or
more. We have four elements in a bar chart: the opening price, the highest price for
that period, the lowest price for that period, and the closing price for that period.
Here we have two examples of a bar chart:
The first of our examples, to the left, is an ascending bar chart. This means that
the price for the day, week, etc., closed above the opening price. The chart shows
an upward day. The second chart, on the right, is a descending bar chart for a day,
week, etc. On this chart, the price closed below the opening price.
We will now translate this into candlestick language. A candlestick has an open,
a close, a high, and a low, just like a bar chart. However, the distance between the
open and the close is enclosed by a rectangle and is called the ‘body.’ The segments
beyond the rectangle are called the ‘shadows.’
In an ascending candlestick, the body is white to signify that the closing price
was higher than the opening price. In a descending candlestick, the body is black to signify that the close was lower than the opening price. Here are three examples
of an ascending white candlestick, a descending black candlestick, and a Doji
candlestick, where the open and the close are the same.