The chart above is the for the same period as the simple line chart shown earlier in the article, except that it is annotated with Candlesticks for each 15 minute period.
A green candle tells at a quick glance that the price increased during the period in question; a red candle that price fell. For this reason you’ll see references on Social Media such as ‘hoping for green candles’.
A quick glance at a candle chart will tell price direction, via the colour, but the simple plot would have done the same. What candles do is fill in the gaps in terms of how price oscillated within that period.
The Opening Price
Each candle will tell you where the price opened (started). If price has increased during the chosen period – shown by a green candle – the Opening Price is illustrated by the bottom of the candle body. If the price fell, the Opening Price is at the top of the candle body.
The Closing Price
The inverse is true of Closing Price. If price fell during the chosen period the bottom of the candle is where the price ended for that candle duration, whereas is price rose, the Closing Price will be at the top.
The Highest Price
Closing and Opening prices frame price activity within a given period but you want to know how the price moved, by knowing the highest price reached. This is illustrated by the tip of the wick extending from the top of the candle.
Where price has increased, the wick will extend from the Closing Price – top of the candle body – to the highest price reached.
The Lowest Price
Conversely the lowest price that was reached will be shown by a wick extending from the bottom of the candle.
Candle Duration
A trading chart is interactive and enables you to zoom in or out, from the perspective of time. So you can choose to look at price candles for different time periods, depending on how granular you want to get.
The standard time cohorts for candles are:
- 1 minute
- 5 minutes
- 15 minutes
- 30 minutes
- 1 hour
- 6 hours
- 12 hours
- 1 Day
- 7 Days
- 14 Days
- 1 Month
Hopefully, as you digest this information you can start to appreciate the story candles are telling. The longer a candle the more price has moved during a period, the long the wicks the greater the range of movement, which can be described as Volatility.
The more volatile a market is, the greater the opportunities to buy/sell and make a profit, but it is a double-edged sword, as the greater the risk. Volatility=risk.
Looking at price movement with the aid of candles is the first step toward technical analysis, as they provide a first layer of detail of price signal and pattern.
A successful trading strategy will interpret recognisable signals and patterns as being indicative of specific future price movement.
The next signal we’ll look at in the following article is trading volume.
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