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A Japanese candlestick is a charting method used to display price movements of an asset over a specific time period. Each candlestick represents four key price points: the opening price, closing price, highest price, and lowest price within that time frame. The candlestick’s body is colored (typically green or red) to indicate whether the price closed higher or lower than it opened.
Japanese candlesticks help traders identify price trends and potential reversals.
The body of the candlestick represents the range between the opening and closing prices. A green or white candlestick indicates that the closing price is higher than the opening price (a bullish movement), while a red or black candlestick shows that the closing price is lower than the opening price (a bearish movement).
The lines above and below the body, known as "wicks" or "shadows," show the highest and lowest prices during the time period. By analyzing candlestick patterns, traders can get insights into market sentiment, possible price movements, and potential reversals. Certain candlestick patterns, such as "Doji" or "Hammer," are particularly important for indicating market turning points.
Short example:
Suppose a stock opens at $100 and closes at $105 during a one-hour trading session.
The price fluctuates between $99 and $107 during that time, making the candlestick have a body from $100 to $105, with upper and lower wicks extending from $105 to $107 and $99, respectively.
This candlestick would be a bullish one, showing that the stock ended higher than it started, despite price fluctuations throughout the session.
Disclaimer: Investing brings risks. Our analysts are not financial advisors. Always consult an advisor when making financial decisions. The information and tips provided on this website are based on our analysts' own insights and experiences. Therefore, they are for educational purposes only.
