Candlesticks

Celticheart Investor

A beginner's guide to trading and investing

So lets look at the candlesticks themselves and try to understand what it was about the day's trading that created them the way they finished the day..

It might not seem that important but, in my opinion, if you can see where those signals emanated from it will help you to understand their significance. Generally speaking, the longer the body is, the more intense the buying or selling pressure. Short candlesticks on the other hand show little movement in the share price from opening to close (the extreme form of this being the Doji).

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the opening price, which shows 
that the share price increased from open to close and buyers were dominant.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open, which shows that the share price reduced from the opening price and sellers were dominant.

An even stronger signal of seller or buyer dominance is the Marubozu, Black and White. The distinct feature of the Marubozu is that it does not have top or bottom wicks (sometimes called shadows). A White Marubozu forms when the share price opens at the day low and closes at the day high. This shows that the buyers were in control for the entire session. A Black Marubozu forms when the share price opens at the day high and closes at the day low. This shows that the sellers were in control for the entire session.

The upper and lower wicks or shadows on candlesticks (black and white) can give us valuable information about the trading session. Upper wicks represent the day's highest trades and lower wicks the day's lowest trades. 

If the candlesticks' wicks were short then the share price stayed close to the open and close positions (low volatility). If the candlesticks had long wicks this shows that the trading range was well outside the open and close positions (high volatility).

Next time:  Repeating patterns

A cautionary note, trading and investing in shares carries a level of risk, these blogs are only meant as a basic guideline to investing and trading, always do your own research and base your decisions on what you can afford to lose. This blog is not intended to provide financial advice as I am not qualified to do so, it is simply designed to provide information about how the markets work that might be of some help to private investors like myself.