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Kinds of Stock Charts 3

Japanese Candlestick Charts

Introduction to Japanese Candlestick Charts

Japanese Candlestick charts are just another way of visually representing stock prices. They’re called “Japanese candlestick charts” because they originated in Japan some 300 years ago.  Many people find them easier to read than bar charts.

Figure 1.5 below is the same daily chart of SUNW that you just saw, but now it’s in a candlestick chart. White candles are up days, and black candles are down days. If it’s a white candle, then the bottom of the candle body is the opening price, and the top of the candle body is the closing price. For black candles, the top of the candle body is the open, and the bottom of the candle body is the close. The lines (or candle wicks) extending from the top of the candlesticks are the highest price for that period, and from the bottom of the candles the lowest prices for that period. Studying fig 1.6 gives a good understanding of candlestick basics.

Japanese Candlestick Charts   

  Fig 1.5 Click to Enlarge. Chart courtesy of StockCharts.com

  Japanese Candlestick Charts
 Fig 1.6   Chart courtesy of StockCharts.com

 Japanese Candlestick Charts
 Fig 1.7 Click to Enlarge. Chart courtesy of StockCharts.com

If you look at the far right of the chart you’ll see the last bar highlighted in yellow which corresponds to March 14th’s price action. You’ll notice that it’s a black bar. That means March 14th was a down day, i.e. SUNW finished at a lower price than it opened. The top of the candle body is the opening price, and the bottom of the candlestick body is the closing price. The line extending from the top of the candle is the high, or highest the stock went during that day.  The line extending from the bottom is the low, or lowest price of the day. Again, if you’d like the precise numbers for the high, low and close, you can refer to the detailed price action information at the upper part of the chart.

Candlestick charts have become so popular that they have their own subdivision of technical analysis. There are entire books written exclusively on how to use candlestick charts. This guide won’t go into any of the complex ways of using them, but it will almost exclusively use candlestick charts from now on, as they’re often easier for beginners to understand.

Part 1: Kinds of Charts | Part 2: Kinds of Charts 2

 
   
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