In order to accurately read trading charts, you need the opening price, the closing price and the high and low of the day (or whichever timeframe you are using).
Candlestick charts are similar to the bar charts as they both display the complete trading range by showing the four important price values: open, high, low, close (OHLC).
The main difference is in the body of the chart. After drawing the vertical line to connect the high and the low, just like in the bar chart, and connecting the horizontal dashes, both on the left and on the right, a box is formed.
The
box is called the body of the candle. The vertical line appearing above
the body is called upper shadow. The vertical line appearing below the
body is called lower shadow. The body and the shadows form what we call
candlestick chart (or candle).
If the closing price is higher than the opening price, the color of the candle is green. If the closing price is lower than the opening price, the color of the candle is red.
The size and the color of the body, and the length of the shadows reveal very important information regarding the current market direction, possible market reversals and the strength of future price movements.
Candlestick charts can be used as a tool to benefit from reversal patterns and continuation patterns during bullish markets (uptrends) as well as bearish markets (downtrends).
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