Candlestick Formation: Understanding Open - High - Low - Close
Japanese Candlesticks are the building blocks of stock-trading. They help traders identify price action and are absolutely crucial for short term day and swing traders. If you’re looking to understand the financial market or simply begin a career in stock trading then you must fully understand the basics before anything else.
The image above reflects a random stock in the stock-market and shows exactly how Japanese candlesticks appear on a chart. There are many different types of candlestick patterns and each one tells us a story for that particular time period. The standard time period for Japanese Candlestick charting ranges from a single minute to an entire month. When looking at a minute chart each candle represents one minute. When looking at the weekly chart each candle represents one week.
If your goal is to become a successful day trader then most likely you will be looking at intra-day charts. These charts are usually broken down in one minute, five minutes, fifteen minutes and one hour time periods. The shorter the period the more candles will appear on the chart.
Here is an example of a one-minute candlestick chart.
Here is an example of a one day candlestick chart.
As you can see the one minute chart ranges from a small price range.
The one day chart reflects a much wider price range because each candle represents a bigger price movement than a simple one minute chart.
Now that you understand how Japanese candlesticks appear on a stock chart let’s take a look at the actual candlestick itself and break down each part. As we can see in the image below each candle has a body and most of the time contains a wick which can appear at the top and the bottom of the candlestick body. Each candle also includes a High, Low, Open and Close which reflects the price of that particular period.
Open: Where the price of the stock opened for that particular period.
High: What the highest price point for the stock was for that particular period
Low: What the lowest price point for the stock was for that particular period
Close: Where the price of the stock closed for that particular period.