What Is a Candlestick Chart and What Is It Used For?

A candlestick chart is a financial analysis tool that many investors and traders use on a daily basis. Candlestick charts offer a unique four-part analysis of each trading period studied. Put simply, a candlestick chart offers information on the open, close, high, and low values of each trading period. What this means for an investor is far more complex, though.

Candlestick charts are often rendered in a two-color arrangement. In the financial marketplace, green bars represent positive price movement, and red bars represent negative. Depending on the color of the bar, an investor can infer the open and close prices of each trading period. These can vary in length from a few seconds to years, and investors have the option to dictate chart drawing as they see fit. A positive momentum bar starts with the open price at the bottom of the bar and displays a close that corresponds with the top of the bar. Price changes that result in negative movement work in the opposite direction. No matter which direction the movement signals during a trading time, the “wicks” on each candlestick, or the lines above and below the main bar, signal high and low prices for the trading period. With these four data points, investors are able to make better judgments about price momentum throughout their trading day. In contrast, a traditional line chart offers simple metrics on the movement and speed of price changes.

This isn’t the only use for a candlestick chart. however. Investors make great use of these analytical products, and the candlestick chart can provide a great depth of information to a savvy investor who knows how to make use of each new addition to the chart. Continue reading to find out more about how candlestick charts are used to full effect.

Candlestick charts lend themselves to greater marketplace analytics.

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This type of chart is great for investors who are looking to incorporate additional data points into their approach to the marketplace. This is because most additional marketplace data comes in the form of a line chart. Line charts offer straightforward analysis of ongoing movement and aggregate totals. When used in combination with this kind of chart type, added data points that are plotted using a line chart to give additional meaning and value to the investor.

In the modern world of investing, many traders are utilizing advancements in AI and machine learning to automate some of their investment practices and boost their analytical output in order to target high-paying opportunities in the marketplace. Coupled with candlestick charts, these additional data points point investors to excellent investment opportunities on a routine basis. Many traders utilize customized trailing averages, specialized high and low point bands, and more in their analytical processes. The use of candlestick charts offers investors an intuitive look at price momentum that isn’t bogged down by additional data points added into the native trading environment.

This data analysis technique is also great for managing ongoing business needs.

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In the modern world, businesses have been forced to handle a number of setbacks from supply chain issues such as that resulting from the Suez Canal blockage to the ongoing health and safety measures that are a part of the expanded marketplace as a result of the coronavirus pandemic.

This data analysis technique is great for managing ongoing business expenses and other elements of brand finance that go beyond the investment space. 

This analytical tool has come a long way in the centuries since its inception. Today investors and businesses rely on these charting tools for a comprehensive understanding of the landscape in front of them.

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