Candlestick charts have been used in Western trading for many years and are a very popular method of plotting the price action of a given security over time. A typical candlestick chart is composed of a series of bars, known as candles, which vary in height and color.
The color of each candle depends on the price action of the security for the given day. An unfilled candle, shown on the left, is created when the opening price is lower than the security's closing price.
Each bar can represent a minute, day, week or even month, but the chosen time frame does not influence the color of the candle. A hollow bar will always be created when the close is higher than the open. This type of candle shows buyers were in control of the security because the price was able to rise over the period, but this does not provide enough information to predict what will happen next.
[Note: Candlestick charts are a great way to determine where prices are headed at a glance, but successful traders combine them with other forms of technical analysis before making decisions. Investopedia's Technical Analysis course provides a comprehensive overview of both chart patterns and technical indicators in over five hours of on-demand video, exercises and interactive content. You'll learn how to set price targets, manage risk and enhance risk-adjusted returns.]
A filled bar, usually red, is created when a security's closing price is below the price at which it opened. This bar shows the asset traded downward for the period and that the bears are in control.
Any color can be chosen to create any candlestick, but regardless of the color used to outline an unfilled bar, it is always used to represent a period where the price rose. In the figure above, we chose blue. And the color of the filled bar, usually red though not always, is used to illustrate periods where the price declined.
For more on this technique, see "Candlestick Charting: What Is It?"
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