What Is Candlestick Pattern?

« Back to Glossary Index

How To Read Candlestick?

Candles can be categorized as a bullish(green) or bearish(red) candle usually. The colors can be customized to any color of your choice depending upon the technical analysis software you use. To read candlesticks one has to pay a closer attention to the overall body of the candle. Above image tells us the same. There are three parts in a single candle, let us try to understand bullish(green) candle first.

How To Read Candlestick?

  • The main body or real body, rectangular in shape it connects the opening and closing price
  • Upper shadow link the high point to the close
  • Lower Shadow joins the low point to the open

Let us see now the bearish(red)candle:

bullish candles

 

  • The main body or real body, rectangular in shape it connects the opening and closing price. However, bearish candles is opposite to bullish candles, the opening is at the top end and the closing is at the bottom end of the rectangle.
  • Upper shadow link the high point to the open
  • Lower Shadow joins the low point to the close

I don’t think, i need to explain what is open, high, low, close? they are self explanatory if you see the candle. However for reference this what OHLC means:

Open – When the markets open for trading, the first price at which a trade gets execute is called the opening price.

High – This tells us the highest price at which the market participants (traders or investor) are willing to transact for the given day.

Low – This shows the lowest level at which the market participants (traders or investor) are OK to transact for the given day.

Close – Closing price is the most important price, as it is the final price at which the market closed for a particular period of time.

Closing price also useful as an indicator for the intraday strength. If the close is higher than the open, then it is considered a positive day(bullish) otherwise negative(bearish).

If you have the OHLC data with you, now you can easily plot both the candlesticks (bullish and bearish). However, you do not need to do this manually, the software does it for you. You just need to take a look at the various points to understand its opening, closing, high, low value.