The history of candlestick charting dates back to 16th Century at Japan developed by a rice trader named Homma Munehisa who has been estimated to make around 100$ bn (inflation adjusted) with his simple approach of reading prices through candlesticks.

  • “What” (Price Action) is more important than “Why” (Earnings, News, ..etc.)
  • Price immediately discounts all available information.
  • The market is made of people and their greed and fear.
  • Actual prices may not be equal to the underlying value.
  • Price has a degree of randomness due to the randomness of participants.

“After 60 years of working day and night, I have gradually acquired a deep understanding of the movements of the rice market… When all are bearish, there is cause for prices to rise. when everyone is bullish there is cause for the price to fall.”
– San-en Kinsen Hiroku, Homma Munehisa, 1755

Let’s swim among all the different chart types –

This is a normal candlestick chart.

This is a hollow candle chart.

This is a hollow candle chart.

Like most traders, we prefer normal candlestick charts. This needs four data – Open, High, Low and Close for each time period you want to display the chart.

If the prices go up that day (closing price is more than opening price) then the candle is colored green and in case of the price going lower that day, the candle is colored red. It encaskets more visual and interpretable version than the normal table of prices or other charts like bar chart which doesn’t color the candles.

This is a detailed example of a bull candle (green one) and a bear candle (red one). The filled portions (colored with green or red) are called as ‘body’ and the wicks are called as ‘shadow’.