1. Candlestick
What is Candlestick?
A candlestick is a type of chart used to display the price movement of a financial instrument over a specific time period. Each candlestick is composed of several parts, like Open, Close, High Close a.k.a OHLC.
History of candlestick
Candlestick charts have a long history dating back to the 18th century in Japan, where they were originally used by rice traders to analyze price movements. The method was later adopted by Japanese technical analysts in the early 20th century, and it eventually spread to the Western world in the 1980s. Steve Nison is credited with introducing candlestick charting to the Western world through his book, “Japanese Candlestick Charting Techniques” which was first published in 1991.
Candlestick charts are based on the same information as bar charts (open, high, low, and close prices), but they are presented in a different format that makes it easier to see the relationship between the open and close prices, as well as the high and low prices. Candlestick charts are considered to be more visually appealing and can make it easier to spot patterns and trends in the price movement of a financial instrument.
Candlestick charts are widely used by traders, investors, and analysts to make predictions about future price movements and have become a popular tool in technical analysis. They are commonly used in stock, currency, and commodity trading.
Candlestick Break Down
How to determine, if a candle is bullish or bearish, irrespective of the colour?
The answer is simple, in a bullish scenario, the closing price is always greater than the open price and in a bearish scenario, the closing price is always lower than the opening price. Highs and lows remain intact irrespective of the bullish and bearish colours.
A candlestick is a type of chart used to display the price movement of a financial instrument over a specific time period. Each candlestick is composed of several parts:
1. The Real Body: This is the rectangular area between the open and closed prices. If the close price is higher than the open price, the real body is typically coloured white or green, indicating a price increase. If the close price is lower than the open price, the real body is typically coloured black or red, indicating a price decrease.
2. The Upper Shadow: This is the line that extends above the real body, representing the highest price reached during the time period.
3. The Lower Shadow: This is the line that extends below the real body, representing the lowest price reached during the time period.
4. The Wick: This is the line that connects the upper and lower shadows. It is also known as the “tail” or “shadow.”
2. Bar Chart
Bar charts are a simple and effective way to represent data and are widely used across different fields and industries. They provide an easy-to-understand representation of data and are useful for comparing and analyzing information. It is similar to the candlestick chart, consisting of OHLC, but the only difference is bar chart emphasizes the closing of the preceding bar. The Top and bottom of the vertical line of the graph depict the High and Low of that specific period and the horizontally left and right line depicts the opening and closing of that specific period.
3. Line Chart
A line chart is a type of chart that is used to display data in a graphical format. It is a popular method of visualizing data as it provides a clear and easy-to-understand representation of information. The chart uses lines to connect data points and show changes in data over time. It mainly uses the closing price for drawing its graph, which eventually looks like a single line over the screen.
It is also worth noting that line charts can be presented in different forms, for example, with or without markers, with or without fill area, and it is possible to use colour and thickness to differentiate the lines.
4. Heikin-Ashi
Heikin-Ashi is a type of candlestick chart that is used to filter out market noise and make it easier to identify trends. It was developed in Japan, and the name “Heikin-Ashi” translates to “average bar” in English.
Heikin-Ashi charts are created by taking the average of the open, high, low, and close prices of a traditional candlestick chart. This creates a “smoothed” version of the chart, which makes it easier to identify trends and patterns in the data.
Heikin-Ashi candlestick calculation:
Open = (open of previous bar + close of the previous bar)/2.
Close = (open + high + low + close)/4.
High = the maximum value from the high, open, or close of the current period.
Low = the minimum value from the low, open, or close of the current period
Heikin-Ashi charts are particularly useful for traders who are looking to identify trends and patterns in the market. They can be used to help identify support and resistance levels, and to help traders make better-informed decisions about when to enter or exit a trade.
Note: The charts are not limited to these mentioned charts, there are many more charts line, Area Chart, Baseline, Renko, Kagi, Point & Figure etc. But their charts are not widely popular and are not even used by traders frequently. The most preferable charts are Japanese Candlestick and Line Charts.
Also Read: Mastering The Markets: Understanding The Different Types Of Traders And Their Approaches
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