Candlestick Chart
A candlestick chart is a type of financial chart that displays the open, high, low, and closing price of a security for a specified time period using a 'candle' shape, with the body representing the open-to-close range and the wicks extending to the period high and low.
Candlestick charting originated in Japan in the 18th century, developed by rice trader Munehisa Homma, and was introduced to Western financial markets by Steve Nison through his 1991 book 'Japanese Candlestick Charting Techniques.' It has since become the most prevalent chart type used by technical analysts worldwide.
Each candlestick represents one unit of time — which can be a minute, an hour, a day, a week, or any other period. The body of the candle represents the range between the opening and closing price. By convention, most charting platforms display a 'bullish' candle (close higher than open) in one color — typically white or green — and a 'bearish' candle (close lower than open) in another — typically black or red. The thin lines extending above and below the body are called 'wicks' or 'shadows' and represent the high and low prices reached during the period.
Candlestick charts convey significantly more visual information per period than a simple line chart (which shows only closing prices) or a bar chart. The relative size of the body versus the wicks, and the position of the body within the overall range, have historically been studied by technical analysts to characterize the balance of buying and selling pressure within a given period based on where the price opened, traveled, and ultimately closed.
Technical analysts have catalogued dozens of candlestick 'patterns' — specific formations created by one, two, or three consecutive candles — each with historical associations described in technical analysis literature. Examples include the 'doji' (when open and close are nearly equal, leaving a very small body), the 'hammer' (small body near the top of the range with a long lower wick), and 'engulfing' patterns (where one candle's body fully contains the prior candle's body). These patterns are studied as historical descriptors of price behavior and sentiment within a period; they are not predictive formulas, and their observed historical associations with subsequent price behavior vary widely across different securities and time periods.