Introduction to Candlestick Chart

History

The Japanese started to use technical analysis to trade rice during the 17th century.
Guiding principles of this early version Technical Analysis share the same principles as US version initiated by Charles Dow during 1900. This includes:-
- The "what" (price action) is more important than the "why" (news, earnings, and so on).
- All known information is reflected in the price.
- Buyers and sellers move markets based on expectations and emotions (fear and greed).
- Markets fluctuate.
- The actual price may not reflect the underlying value.
According to another source believed to be Steve Nison, such charting of candle stick first appeared sometime after 1850. Candlestick development and charting was primarily the effort of rice trader named Homma in Japan. Over some period his initial idea were modified and refined, which results in the system candlestick that is used today.

Formation
Candlestick chart is created based on data set containing Open, High, Low and Close value for each time period.
“The body” of candlestick consist of either hollow or filled portion. Sometimes it is also referred to as “the real body”.
“Shadows” are the long thin lines above and below the body which stand for high/low range. This means high is represented by Top Upper Shadow and low is marked by Bottom of Lower Shadow.
Hollow candlestick means that the stock closes higher than its opening price. This is represented by bottom of the body as opening price and top of the body as closing price.
Filled candlestick means that the stock closes lower than its opening price. This is represented by top of the body and opening price and bottom of the body as closing price. Advantages of Candlestick Charts:-
i) Easier to interpret and more visually appealing compared to traditional bar chart
ii) Provide clear picture of the price action, which allow trader to correlate between high and low as well as open and close. This information is important to feature of candlestick chart.
iii) Hollow candlestick, where close is greater than open, signify buying pressure, while filled candlestick, where close is less then open signify selling pressure.