Candlestick is nothing more than a chart format used in the technical analysis of the market developed by the Japanese in the mid-18th century.
The method was applied to interpret the old oscillations of rice bags in the city of Osaka. In general, Candlestick standards help investors to follow asset price trends, signaling points of support and resistance .
Learn a little about the history of the Candlestick method
In the 18th century, the Japanese developed a method of technical analysis to track the prices of future rice contracts.
Rice was the predominant commodity in the country and farmers across Japan sent bags from their warehouses to different regions and, in return, received titles representing the value, a document that could be sold at any time in so-called rice bags.
Candlestick is the westernized name for the technique used at the time, which became known worldwide. All of this popularization was largely due to the American Steve Nison, a Wall Street investor.
Munehisa Honma is said to have further developed the Candlestick method. Instead of being present in Osaka to make the transitions, he sent the purchase and sale instructions to a messenger, who represented him on the stock exchange . Legend has it that he was able to obtain 100 consecutive winning trades.
What are the characteristics of the Candlestick method?
Candlestick in English means chandelier. The name is due to the fact that the icons displayed on Candlestick charts look like candles.
To make everything clearer, see the images below for an example of a graph and the meaning of each of its elements.
- Opening price– is the price at which the first deal in the range was closed (for example, on the day).
- Closing price– is the price at which the last deal in the range was closed.
- Maximum price– is the highest price traded in the range.
- Minimum price– is the lowest price negotiated in the range.
How to interpret the variations of the Candletick chart?
The time interval on the Candlestick chart can be measured in minutes, day, week, month, etc. Whoever carries out day trade operations , for example, buying and selling assets on the same day, usually works with a candlestick pattern between 1 and 5 min.
Since in swing trade operations it is customary to use 1 day intervals.
The structure of the Candlestick chart shows the following possible variations:
- Without body and with shadow (doji): ithappens when the opening price is equal to the closing price but there is a difference between the lowest and the highest price;
- With body and shadow: ithappens when the opening price is different from the closing price, but there is still a bigger difference between the lowest and the highest price, with the closing prices;
- With body and without shadow: ithappens when the opening price is different from the closing price, however there is no difference in comparison between the highest and the lowest price, with the closing prices.