What in the World is a Candlestick Chart?

It sounds like a contradiction in terms, or an impossibility.  We all know what a candlestick is; it is an object that is placed on the dining table in order to provide grace and light.  A chart is a writing on paper or on the computer screen which proposes to disclose, usually in graphic or numeric form, past events or a prediction of events yet to come.  How is it possible that there can be a marriage of the two?

First, we need to understand what a Candlestick chart is, in this context.  We assume, first of all, that we are talking about financial matters, not matters related to the culinary arts.  In the financial world, we are very familiar with the bar chart, which displays prices for a given time period, say a day or a week, in linear form wherein the range of prices is shown as a line which shows the top extreme of prices and the low extreme of prices during that time period, plus a blip on the left side of the line which denotes the opening price and another blip on the right side which denotes the closing price.  How dull.  Something happened; the record has been made; saints be praised.

But what did that bar chart tell us about the traders themselves?  Where is the human element in all this?  We know that stock trading, in particular, is the product of human emotion more than it is of pure rationality.  How do we find out about the hidden psychology which drove price action on that day?

We find it by examining Candlesticks Charts, which “fatten out” that part of the old bar chart price display which lies between the opening price and the closing price.  If the close that day was higher than the open, then the fattened-out part is left blank inside, or white.  If the close that day was lower than the open, then the fattened-out part is filled in, or made black.

It’s that simple, and yet it tells so much more.  Candlestick presentation really comes into its own when price presentation is shown in real time; then it becomes like a motion picture, in which you can’t see the actors’ faces but you certainly do understand their group emotion is having on prices right as you watch.