Chapter 2 READING CANDLESTICK CHARTS
In the Seventeenth century, the Japanese developed a method to analyze the price of rich contracts. This technique is called “candlestick charting. Steven Nison is credited with popularizing the candlestick chart and has become recognized as the leading authority on the interpretation of the system. Candlesticks chart the price fluctuations of a product. A candlestick can represent any period of time. A currency trader’s software can provide charts representing anywhere from five minutes to one week per candlestick.
Candlestick charts do not involve any calculations. They simply chart price movements in a given time period. Each candlestick displays four important pieces of information, which show the price fluctuations during the time period of the candle. In much the same way as the more widely-known bar chart, a candle give us the opening price, the closing price, the highest price and the lowest price of the time period. Candlesticks are easier to use because they more clearly demonstrate the relationship between the opening and closing prices. Because candlesticks display the relationship between the open, high, low and closing prices, they cannot be used to chart securities that have only closing prices. The interpretation of candlestick charts is based on patterns. Currency traders use primarily the relationship of the highs and lows of the candlewicks over a given time period. However, some patterns can be identified to anticipate price movements. There are two types of candles: the bullish pattern candle and the bearish pattern candle.
A white or empty bodydisplays the bullish candlepattern. It occurs whenprices open near the lowprice and close near theperiod’s high price.
A black or filled bodydisplays the bearishcandle pattern. It occurswhen prices open near thehigh price and close nearthe period’s low price.