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A candlestick chart is a style of financial chart used to describe price movements of a security, derivative, or currency. It is similar to a bar chart in that each candlestick represents all four important pieces of information for that day: open and close in the thick body; high and low in the “candle wick”.
The candlestick’s shadows show the day’s high and low and how they compare to the open and close. A candlestick’s shape varies based on the relationship between the day’s high, low, opening and closing prices.
Candlesticks reflect the impact of investor sentiment on security prices and are used by technical analysts to determine when to enter and exit trades. Candlestick charting is based on a technique developed in Japan in the 1700s for tracking the price of rice. Candlesticks are a suitable technique for trading any liquid financial asset such as stocks, foreign exchange and futures.
Long white/green candlesticks indicate there is strong buying pressure; this typically indicates price is bullish. However, they should be looked at in the context of the market structure as opposed to individually. For example, a long white candle is likely to have more significance if it forms at a major price support level. Long black/red candlesticks indicate there is significant selling pressure. This suggests the price is bearish. A common bullish candlestick reversal pattern, referred to as a hammer, forms when price moves substantially lower after the open, then rallies to close near the high. The equivalent bearish candlestick is known as a hanging man. These candlesticks have a similar appearance to a square lollipop, and are often used by traders attempting to pick a top or bottom in a market.
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