Candlestick charts are charts used by stock market day-traders to help identify patterns in particular stocks. A candlestick chart shows the range of movement over a period of time for any one stock. A candlestick chart shows the highs and lows as well as the open and close prices. Candlestick charts use colors to detail the stocks' activity with each indicator telling the day-trader how the stock compared to its open price and close price from the previous day.
Follow the vertical lines. The vertical lines of a data entry on a candlestick chart show how high or low the price of the stock rose or fell. The lines help predict future action and show the stability of the stock. The vertical line above the body shows how high the stock rose during the day's session. The vertical line below the body shows the stock's low point during the session.
Learn the key to the candlestick chart so you can decipher the stock's daily action quickly. The body of the stock has four variations. A green outlined body means the stock closed higher than it opened that day and higher than it closed the day before. A red outline means the stock closed lower than it opened that day and lower than it closed the day before. A green solid body means the stock closed less than the open but higher than yesterday's close. A red solid body indicates the stock closed lower than it opened that day and lower than it closed the day before.
Use the pattern of the candlestick chart to buy stocks when they have strong indicators and sell when the indicators are weak. Candlestick charts are especially beneficial to showing short-term indicators of price direction and strength.