Candlestick chart: Difference between revisions
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{{short description|Type of financial chart}} |
{{short description|Type of financial chart}} |
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{{More citations needed|date=July 2010}} |
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[[File:Candlestick chart scheme 01-en.svg|thumb|200px|Scheme of a single candlestick chart |
[[File:Candlestick chart scheme 01-en.svg|thumb|200px|Scheme of a single candlestick chart. A candlestick as this one is usually shaded red as the close is lower than the open. The Low and High caps are usually not present but may be added to ease reading.]] |
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[[File:Order book depth chart.gif|thumb|300px|An hourly candlestick shown with [[Order book (trading)|order book]] depth on a currency exchange.]] |
[[File:Order book depth chart.gif|thumb|300px|An hourly candlestick shown with [[Order book (trading)|order book]] depth on a currency exchange.]] |
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A '''candlestick chart''' (also called '''Japanese candlestick chart''') is a style of financial chart used to describe price movements of a [[security (finance)|security]], [[derivative (finance)|derivative]], or [[currency]] |
A '''candlestick chart''' (also called '''Japanese candlestick chart''' or '''K-line''') is a style of financial chart used to describe price movements of a [[security (finance)|security]], [[derivative (finance)|derivative]], or [[currency]]. |
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While similar in appearance to a bar chart, each candlestick represents four important pieces of information for that day: open and close in the thick body, and high and low in the "[[candle wick]]". Being densely packed with information, it tends to represent [[trading|trading patterns]] over short periods of time, often a few days or a few trading sessions.{{cn|date=July 2023}} |
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[[File:Candlestick Chart in MetaTrader 5.png|thumb|300px|Candlestick chart of EUR/USD [[currency pair]] on daily timeframe in MetaTrader 5 trading platform.]] |
[[File:Candlestick Chart in MetaTrader 5.png|thumb|300px|Candlestick chart of EUR/USD [[currency pair]] on daily timeframe in [[MetaTrader 4|MetaTrader 5]] trading platform.]] |
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Candlestick charts are most often used in [[technical analysis]] of equity and currency price patterns. |
Candlestick charts are most often used in [[technical analysis]] of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period.{{cn|date=July 2023}} They are visually similar to [[box plot]]s, though box plots show different information.<ref>{{cite book |last1=Patel |first1=Ravi |title=Guide To Technical Analysis & Candlesticks |date=1 January 2010 |publisher=Buzzingstock Publishing House|asin=B00GZMSEDM}}</ref> |
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==History== |
==History== |
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Candlestick charts are thought to have been developed in the 18th century by [[Munehisa Homma]], a [[Japanese language|Japanese]] rice trader.<ref>{{Cite book|title=Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures|last=Gregory M.|first=Morris|publisher=[[McGraw-Hill Education|McGraw-Hill]]|year=2006|isbn=9780071461542}}</ref> They were introduced to the Western world by Steve Nison in his book |
Candlestick charts are thought to have been developed in the 18th century by [[Munehisa Homma]], a [[Japanese language|Japanese]] rice trader.<ref>{{Cite book|title=Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures|last=Gregory M.|first=Morris|publisher=[[McGraw-Hill Education|McGraw-Hill]]|year=2006|isbn=9780071461542}}</ref> They were introduced to the Western world by Steve Nison in his book ''Japanese Candlestick Charting Techniques'', first published in 1991. They are often used today in stock analysis along with other analytical tools such as [[Fibonacci retracement|Fibonacci analysis]].<ref name="nison">{{Cite book|title=Japanese Candlestick Charting Techniques|last=Nison|first=Steve|publisher=[[Prentice Hall|Prentice Hall Press]]|year=2001|edition=2nd|isbn=9780735201811|url-access=registration|url=https://archive.org/details/japanesecandlest0000niso}}</ref> |
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In ''Beyond Candlesticks'',<ref>{{Cite book|title=Beyond Candlesticks: New Japanese Charting Techniques Revealed|last=Nison|first=Steve|publisher=[[Wiley (publisher)|John Wiley & Sons]]|year=1994|isbn=9780471007203}}</ref> Nison says: |
In ''Beyond Candlesticks'',<ref>{{Cite book|title=Beyond Candlesticks: New Japanese Charting Techniques Revealed|last=Nison|first=Steve|publisher=[[Wiley (publisher)|John Wiley & Sons]]|year=1994|isbn=9780471007203}}</ref> Nison says: |
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The area between the open and the close is called the ''real body'', price excursions above and below the real body are ''shadows'' (also called [[candle wick|''wicks'']]). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades. |
The area between the open and the close is called the ''real body'', price excursions above and below the real body are ''shadows'' (also called [[candle wick|''wicks'']]). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades. |
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The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick.The range is calculated by subtracting the low price from the high price. |
The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick. The range is calculated by subtracting the low price from the high price. |
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The fill or the color of the candle's body represent the price change during the period. Normally, if the asset closed higher than it opened, the body is displayed as hollow (or the green color is used), with the opening price at the bottom of the body and the closing price at the top. Conversely, if the asset closed lower than it opened, the body is displayed as filled (or the red color is used), with the opening price at the top and the closing price at the bottom. Modern charting software permits unrestricted customization of candle looks and colors, so the actual look of rising or falling price candles may vary. |
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A version of a candlestick chart is a ''hollow candlestick'' chart, where both fill and color are used to represent different price relationships:<ref>{{Cite web |url=https://www.highcharts.com/blog/tutorials/how-to-read-hollow-candlesticks/ |title=How to Read Hollow Candlesticks |date=2021-08-20 |access-date=2024-01-14 |website=Highcharts |last=Mekhatria |first=Mustapha}}</ref> |
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* Solid candles show that the current close price is less than the current open price. |
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* Hollow candles show that the current close price is greater than the current open price. |
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* Red candles show that the current close price is less than the previous close price. |
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* Green candles show that the current close price is greater than the previous close price. |
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A candlestick need not have either a body or a wick. Generally, the longer the body of the candle, the more intense the trading.<ref name="nison" /> |
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[[File:Candlestick chart scheme 03-en.svg|thumb|245px|In trading, the trend of the candlestick chart is critical and often shown with colors.]] |
[[File:Candlestick chart scheme 03-en.svg|thumb|245px|In trading, the trend of the candlestick chart is critical and often shown with colors.]] |
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==Heikin-Ashi candlesticks== |
==Heikin-Ashi candlesticks== |
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Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way: |
Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way:{{cn|date=July 2023}} |
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<ref>{{cite web | url=https://www.investopedia.com/terms/h/heikinashi.asp | title=Heikin-Ashi technique | publisher=Investopedia | access-date=18 August 2020 | last=Mitchell | first=Cory}}</ref> |
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* '''Open''' = (Previous bar open price + Previous bar close price) / 2 |
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* '''Close''' = (Current bar open + Current bar close + Current bar high + Current bar low ) / 4 |
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* '''High''' = ''MAX'' (Current bar open, Current bar close, Current bar high) |
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* '''Low''' = ''MIN'' (Current bar open, Current bar close, Current bar low) |
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* Close = (real open + real high + real low + real close) / 4 |
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* Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2 |
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* High = max(real high, Heikin-Ashi open, Heikin-Ashi close) |
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* Low = min(real low, Heikin-Ashi open, Heikin-Ashi close) |
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==Relationship to box plots== |
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{{Unreferenced section|date=March 2018}} |
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Candlestick chart are similar to [[box plot]]s. Both show maximum and minimum values. The difference between them is in the information conveyed by the box in between the max and min values. |
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==References== |
==References== |
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{{technical analysis}} |
{{technical analysis}} |
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== External links == |
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[[Category:Financial charts]] |
[[Category:Financial charts]] |
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[[Category:Japanese inventions]] |
[[Category:Japanese inventions]] |
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Latest revision as of 01:52, 24 June 2024
A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
While similar in appearance to a bar chart, each candlestick represents four important pieces of information for that day: open and close in the thick body, and high and low in the "candle wick". Being densely packed with information, it tends to represent trading patterns over short periods of time, often a few days or a few trading sessions.[citation needed]
Candlestick charts are most often used in technical analysis of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period.[citation needed] They are visually similar to box plots, though box plots show different information.[1]
History
[edit]Candlestick charts are thought to have been developed in the 18th century by Munehisa Homma, a Japanese rice trader.[2] They were introduced to the Western world by Steve Nison in his book Japanese Candlestick Charting Techniques, first published in 1991. They are often used today in stock analysis along with other analytical tools such as Fibonacci analysis.[3]
In Beyond Candlesticks,[4] Nison says:
However, based on my research, it is unlikely that Homma used candle charts. As will be seen later, when I discuss the evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in Japan (in the late 1800s).
Description
[edit]The area between the open and the close is called the real body, price excursions above and below the real body are shadows (also called wicks). Wicks illustrate the highest and lowest traded prices of an asset during the time interval represented. The body illustrates the opening and closing trades.
The price range is the distance between the top of the upper shadow and the bottom of the lower shadow moved through during the time frame of the candlestick. The range is calculated by subtracting the low price from the high price.
The fill or the color of the candle's body represent the price change during the period. Normally, if the asset closed higher than it opened, the body is displayed as hollow (or the green color is used), with the opening price at the bottom of the body and the closing price at the top. Conversely, if the asset closed lower than it opened, the body is displayed as filled (or the red color is used), with the opening price at the top and the closing price at the bottom. Modern charting software permits unrestricted customization of candle looks and colors, so the actual look of rising or falling price candles may vary.
A version of a candlestick chart is a hollow candlestick chart, where both fill and color are used to represent different price relationships:[5]
- Solid candles show that the current close price is less than the current open price.
- Hollow candles show that the current close price is greater than the current open price.
- Red candles show that the current close price is less than the previous close price.
- Green candles show that the current close price is greater than the previous close price.
A candlestick need not have either a body or a wick. Generally, the longer the body of the candle, the more intense the trading.[3]
Candlesticks can also show the current price as they're forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time.
Rather than using the open, high, low, and close values for a given time interval, candlesticks can also be constructed using the open, high, low, and close of a specified volume range (for example, 1,000; 100,000; 1 million shares per candlestick).[citation needed] In modern charting software, volume can be incorporated into candlestick charts by increasing or decreasing candlesticks width according to the relative volume for a given time period.[6]
Usage
[edit]Candlestick charts are a visual aid for decision making in stock, foreign exchange, commodity, and option trading. By looking at a candlestick, one can identify an asset's opening and closing prices, highs and lows, and overall range for a specific time frame.[7] Candlestick charts serve as a cornerstone of technical analysis. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true when there is a black bar.
A candlestick pattern is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends.[citation needed]
Heikin-Ashi candlesticks
[edit]Heikin-Ashi (平均足, Japanese for 'average bar') candlesticks are a weighted version of candlesticks calculated in the following way:[citation needed]
- Close = (real open + real high + real low + real close) / 4
- Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2
- High = max(real high, Heikin-Ashi open, Heikin-Ashi close)
- Low = min(real low, Heikin-Ashi open, Heikin-Ashi close)
The body of a Heikin-Ashi candle does not always represent the actual open/close. Unlike with regular candlesticks, a long wick shows more strength, whereas the same period on a standard chart might show a long body with little or no wick.[citation needed]
References
[edit]
- ^ Patel, Ravi (1 January 2010). Guide To Technical Analysis & Candlesticks. Buzzingstock Publishing House. ASIN B00GZMSEDM.
- ^ Gregory M., Morris (2006). Candlestick Charting Explained: Timeless Techniques for Trading Stocks and Futures. McGraw-Hill. ISBN 9780071461542.
- ^ a b Nison, Steve (2001). Japanese Candlestick Charting Techniques (2nd ed.). Prentice Hall Press. ISBN 9780735201811.
- ^ Nison, Steve (1994). Beyond Candlesticks: New Japanese Charting Techniques Revealed. John Wiley & Sons. ISBN 9780471007203.
- ^ Mekhatria, Mustapha (2021-08-20). "How to Read Hollow Candlesticks". Highcharts. Retrieved 2024-01-14.
- ^ "CandleVolume [ChartSchool]". Stockcharts. Retrieved 22 October 2019.
- ^ Lu, Tsung-Hsun; Shiu, Yung-Ming; Liu, Tsung-Chi (2012-04-01). "Profitable candlestick trading strategies—The evidence from a new perspective". Review of Financial Economics. 21 (2): 63–68. doi:10.1016/j.rfe.2012.02.001.