Candle Charts

Candlestick chart
Candle Charts Image via Wikipedia

Candle charts, like bar charts, display more price information than line charts, and are thus more useful for the short-term trading that binary option traders engage in. Candle charts are more visually complex, and usually more colorful, than the other major chart types, and this complexity is worth learning because these charts open the door to a whole new system of price analysis.

Candle charts use a unique and ancient symbol to represent market prices—the Japanese candlestick. These symbols were developed by Japanese rice traders over five hundred years ago, and they are remarkable in their cleverness. Each candlestick contains a body, which is a vertical rectangle. The top of the body indicates the highest price of the asset during the time interval represented by the candlestick; the bottom of body indicates the lowest price. The color of body indicates whether it is an ‘up’ or ‘down’ candle. An ‘up’ candle represents a net increase during in the asset price during the candle’s time interval, and a ‘down’ candle represents a net decrease. Most website and charting platforms color ‘up’ candles green and ‘down’ candles red.

Connected to the body of a candlestick are its wicks. Wicks are short vertical lines that extend up and down from the center of the candle’s body. The wick that extends from the top of the candle shows the highest price that occurred during the candle’s time interval, and the wick that extends form the bottom shows lowest price that occurred. The wicks and the body together show the high, low, open, and close (HLOC) prices of an asset during the time interval the candlestick represents.

An entire school of technical analysis focuses on Japanese candlesticks. Traders who use this method of analysis claim that the unique combinations of certain types of candlesticks are excellent indicators of what is about the future direction of the asset’s price. There are entire books and websites dedicated to trading according to Japanese candlestick patterns.