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What Does a Candlestick Chart Show?

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Scott Wolstein Health

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A candlestick chart is a common data analysis tool used in the stock market and in the business world. Investors and business leaders rely on the nuanced data representation opportunity that candlestick charts provide. Rather than the often-seen line graph data representation system, investors who rely on candlestick chart data are seeking a better understanding of timeline movement in the price graph.

Many people ask, “What does a candlestick chart show?” when they first get into investing or the business world more broadly. The transition from simple line graphing to the use of a candlestick chart can seem daunting when you first approach this change in methodology. But the data represented in each candlestick offers insight into more than just simple price changes throughout the day. A candlestick chart is an integral tool in developing long-term success in the market and in many other phases of business.

Continue reading to learn what a candlestick chart shows and how you can use one to great effect in your own life.

Candlestick charts are excellent for showing subdivisions on a price graph throughout the charted period.

A candlestick chart is a preferred method of representing price movement data for many investors. This is because it allows for four unique data points to be incorporated into a single graphical representation. When approaching the stock market through this lens, it’s commonplace to see candlestick charts in a two-color setup: green for positive movement in the stated timeframe, and red for negative change over the period. In addition to color-coding, this data validation tool offers four points of focus on each segment of time measured. The top and bottom range is represented by the “wicks” on either end of the candlestick itself. These lines provide context for the volatility of each represented trading period. Large movement can signal increased volatility and perhaps a unique opportunity to buy or sell a commodity.

Likewise, these charts offer insight into the open and close values of each recorded segment of time. On a positive candlestick (green) the bottom of the bar represents the open value, and the top represents the close. On a red bar (representing a decline in price) the inverse relationship exists, meaning that the top of the bar represents the open and the bottom the close.

With all this ingrained data, investors are able to make smarter decisions throughout the trading day. Additionally, the use of this representational device allows for stacked charts that don’t get bogged down in the clutter of various lines across the X and Y axes. Instead of a network of lines running in competition with one another, investors are able to see price movement as a discrete unit on the chart and incorporate additional data points in the form of line graphs that help them to make decisions with greater confidence.

Data-driven investment is the way of the future.

Investors have been utilizing this method of price charting for many years. But in the modern world, it lends itself to greater analytical capacity that hasn’t always been possible. Today, investors use advanced AI and machine learning processes to make greater sense of the marketplace and the connections that exist between stocks, industrial environments, and global economies.

With the help of cloud-based technologies, investors are able to capture and integrate vast networks of data insights that help them make smarter trades across all corners of the marketplace. The use of candlestick price charts facilitates this introduction seamlessly and fits with the ongoing trend of investors relying heavily on data products and smart analytics and insights to drive ongoing profit.

Candlestick charts are not new to the marketplace, but they’re making new waves every day in the portfolios of investors.

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