A candlestick chart is a type of financial graph that displays the open, high, low, and close prices of an asset over a specific period.
Reading candlestick charts
Candlestick charts originated in Japan. They are applied by traders across global financial markets, including equities and foreign exchange. Each candlestick represents a specific timeframe chosen by the user. This timeframe ranges from a single minute to an entire month.
A single candlestick contains a wide section called the real body. The real body shows the price range between the open and close of the trading period. Thin lines extending above and below the real body are called wicks or shadows. The upper wick indicates the highest price reached during the timeframe. The lower wick shows the lowest price.
The color of the real body indicates whether the closing price was higher or lower than the opening price. A green or white body means the asset closed higher than it opened. A red or black body means the asset closed lower than it opened. Market participants observe patterns formed by groups of candlesticks to forecast potential future price direction.
Example
Suppose you, as fellow Elephants, are analyzing the daily stock chart for an international agricultural logistics company. On Wednesday, the market opens with the stock priced at $40. During the trading session, the price drops to a low of $35 before rallying to a high of $50. The stock then finishes the day at $48. The candlestick for Wednesday has a green real body because the $48 close is higher than the $40 open. The lower wick extends from the $40 open down to the $35 low. The upper wick extends from the $48 close up to the $50 high. By viewing this candlestick, Elephants identify the complete price movement for that specific trading day.