What is a Candlestick Chart and How to Read it?

Recently in the previous article, we had explained the definition of trade and the type of trading options that are popular in India. If you haven’t gone through that, then you can refer it over here: Types of Stock Market Trading in India. In that article, we had referred to research by looking at the historical trend of the stock. Now to do that you will need to review that chart of the specific stock over months. In the charts, the Bar is known as the Candlesticks. Below is a sample of how it looks like.

The above chart contains the raw data about the price movements of the stock and this is called the “Naked Price Action“. All the indicators use information from the price action. Now by using this Candlestick chart the traders understand the price movement of the stocks. This Candlestick chart helps traders in identifying the pattern and decide if they need to buy or sell.  Now let’s understand the basic information about the Candlestick.

Type of Candlestick

1. Bullish Candle: The candlestick in the “Green” color represents the bullish candle. A bullish candle shows that the price has increased over the period.
2. Bearish Candle: The candlestick in the “Red” color represents the bearish candle. A bearish candle shows that the price has decreased over the period.

“In the above definition period means the price action of a fully formed candle for the selected period. Let’s take an example that, you selected a 15-minute window for the chart then, each of the fully formed candles will show the price action for 15-minutes.”

Parts of Candlestick and the Information it gives

1. Real Body: The fat rectangular part of the candlestick is known as the “Real body”. The Real body shows the specific price actions related to the opening and closing price. For the bullish candle, the bottom of the candle denotes the opening price and the top of the candle denotes the closing price over the period.  For the bearish candle, it’s the opposite. The top of the candle denotes the opening price and the bottom of the candle denotes the closing price over the period.
   
2. Shadow or Tails or Wicks: The vertical lice which are coming off the candlestick are referred to as Shadows or Tails or Wicks. The information added by the Shadow/Tails/Wicks is about the highest and the lowest price of the period.
   

At the time’s while viewing the trend we see some candles without a real body. This type of candle is known as “Doji Candle“. For these candlesticks, the price opened and the closed are the same or nearly the same due to which it has a little or no real body.

If we put all information together then these are the basic information about the candlestick and how to read them. We hope you have learned and now you clearly understand a candlestick. In case you have further queries then do let us know in the comment section.