Like I said in my previous blog that charts are an pictorial representation of market psychology. We can also say that a chart is like a map, if the map is correct, we reach our destination similarly, good charts helps us analyze the markets better.
Candle charts display a more detailed and accurate map of the market than bar charts do, though this may vary from person to person.
Superiority between the bulls and the bears can be determined with the help of candle charts.
Candle charts can show the market trend along with the force behind the move.
Candle charts can send clues of imminent reversals with just one to three candles. As a result we can take early calls and timely trades.
The popularity of candle charts is growing day by day.
Candlestick charts use the same data which an bar chart uses i.e. open, low, high and close but yet the candle charts give us an advantage over the bar charts because we get all the information provided in the bar charts and at the same time, each candle in the candlestick charts has an story to offer. So, we should use candle charts for our analysis.
Initially it was the Japanese who used the candle charts but with time and with Steve Nison introducing the Candle charts to rest of the world, at present a majority of traders use candle charts for their analysis.
There was a time when only Japanese used the candle charts and we can say that it was their hidden tool to take advantage in the world markets but now it is not a secret anymore.
Japanese learned all the Western techniques and then combined it with their candle charts to trade in the markets.
CONSTRUCTION OF THE CANDLE LINE
In present times we do not need to draw any charts manually but we can draw charts with just a click of a button. Have a look at the images below:
The first step in using the power of candles is learning how to construct the basic candle line.
You can see above that the candle consists of a rectangular section and two thin lines above or below this section. Because the individual lines looks like a candle with their wicks, we refer it as candle and the charts as candlestick charts.
The rectangular part of the candlestick line is called the real body which represents the range between the session’s open and close.
When the real body is black, it means that the close was lower than the open and when it is white, it says the close was higher than the open.
With the help of computers, today we mostly draw colored candles/charts.
Red representing down day and green representing positive day.
The line above the real bodies are called the shadows. The shadows represents the extreme prices at which the instrument was traded.
The shadow above the real body is known as upper shadow and the one below is lower shadow. The high of the upper shadow is the high of the session and the low end of the lower shadow is low of the session.
We can use the charts in different time frames like yearly, monthly, weekly, daily, hourly or minutes charts.