Share Market Learning Series | Charting Type | Candlesticks Basics | Learn about Components, Structure and its importance

Candlesticks Basics

Introduction:

In Financial market, to understand & to evaluate price of an assert, we need to know the histroy of that assert's price. By plotting price against different time period, we can understand the price movement of the assert. One way of representing price wrt time, is using candlestick chart.

Components of Candle:

A candle is drawn with following 4 basic parameters:

1. OPEN: Represents the opening price of the candle.
2. HIGH: High represents the highest price the assert moved during the selected TF.
3. LOW: Low represents the lowest price point till where the assert moved in selected TF.
4. CLOSE: Closing price of the candle after the swing between high & low.

Candle Structure:

Based on above components of candles, we can form following terms to understand the nature of candle

1. RANGE,   2. BODY,   3. WICK

Range:

• Range of candle is the region between High & Low of the candle.
• Based on the price movement (momentum), the range of candle can be wide or narrow.

Body:

• Body of candle represents the region between Open & Close of the candle.
• If Close is above Open, then it indicates price has moved higher. (Bullish Candle)
• If Close is below Open, then price have moved lower. (Bearish Candle)

Wick:

• Represents the remaining region apart from body in a candle.
• Sometime wick might be absent in a candle.
• Wick represents how volatile the assert moved in given candle.
• Wick are also called as Tail or Shadow of candle.

• Candlestick without wick shows the strength of the candle.
• wick represents opposite party (buyer/seller) has entered based on the position of wick.
• wick @ top of candle: price tried to go higer, but sellers stopped and pushed the price lower.
• wick @ bottom of candle: price moved lower, and buyers entered and pushed back price higher.
• No wick: price is moving stronger in one direction.

Based on the various combination of above three parameters we can get more information about the trend & strength.

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