An introduction to candlestick tables in trading or investing, reading charts can be a daunting task. Some rely on their gut feelings and make investments based on their intuition. While this strategy may work temporarily in a bull market environment, it is unlikely to work in the long term.
Basically, trading and investing is a game of probability and risk management. Therefore, the ability to read candlestick charts is essential for almost any investment style. This article explains what candlestick charts are and how to read them.
What is a candlestick table?
Candlestick charts are a type of financial chart that graphically represent the price movement of an asset over a certain period of time. As the name suggests, it consists of candlesticks each representing the same amount of time. Candles can represent almost any period from seconds to years.
Candlestick tables date from around the seventeenth century. Its creation as a planning tool is often attributed to a Japanese rice trader named Homma. It was likely his idea that provided the basis for what is now used as the modern candlestick chart. Homma’s results have been developed by many people, most notably Charles Dow, one of the fathers of modern technical analysis.
While candlestick charts can be used to analyze other types of data, they are mostly used to facilitate analysis of financial markets. Used properly, it is a tool that can help traders gauge the likely outcomes in price action. They can be useful because they allow traders and investors to form their own ideas based on their analysis of the market.
How do candlestick tables work?
The following price points are required to construct each candlestick chart:
• Open – the first recorded trade price for the asset within the specified time frame.
• High – the highest recorded trading price for the asset within the specified time frame.
• Low – the lowest recorded trading price for the asset within the specified time frame.
• Close – the last recorded trading price for the asset during this specified time frame.
Collectively, these data sets are often referred to as OHLC values. The relationship between the opening, high, low and close points determines the shape of the candlestick.
The distance between the open and close is called the body, while the distance between the body and the upper/lower boundary is called the axis or shadow. The distance between the highest and lowest candles is called the range of the candlesticks.
How to read a candlestick table
Many traders find candlestick charts easier to read than traditional bar and bar charts, even though they provide similar information. Candlestick charts are readable at a glance providing a simple representation of price action.
In practice, candlesticks show the struggle between up and down movements for a certain period. In general, the taller the body the greater the buying or selling pressure over the timeframe being measured. If the wick on the candle is short, it means the high (or lower) of the time frame measured is closer to the Candlestick Tables closing price.
Colors and settings may vary with different layout tools but in general if they are green, it means the original was closed higher than it was open. Red means that the price has fallen over the timeframe being measured, so the close is lower than the open.
Some planners prefer to use black and white representation. So instead of using green and red, the chart represents an uptrend in hollow candles and a downward move in black candles.
What the candlestick chart doesn’t tell you
While candlesticks are useful for giving you an overview of price action, they may not provide everything you need for a comprehensive analysis. For example, a candlestick does not display in detail what happened in the period between its open and close, only the distance between the two points (along with the high and low prices).
For example, while a candlestick wick tells us the high and low period, it can’t tell us what happened first. However, in most charting tools the timeframe can be changed allowing traders to zoom in on the lower timeframes for more details.
Candlestick charts can also contain a lot of market noise especially when drawing on smaller time frames. Wax can change so quickly that it can be hard to interpret.
Heikin-Ashi candles
So far, we have covered what are sometimes referred to as Japanese candlestick tables. However, there is another method for calculating candlesticks. The Heikin-Ashi technique is one of them.