First of all, what is a chart? A chart of a stock graphs a stock’s price on the y-axis, and time on the x-axis. You probably are familiar with simple line charts, but candlestick charts provide more information and are more commonly used.
Look at the diagram of the chart below. The box, or “candle” is the body of the candle. Each candle represents a certain amount of time, usually a day. The wicks of the candle are technically referred to as the “wicks,” but they are referred to by their purpose (high or low) in common language. The ends of the body are formed by the opening and closing prices of the security during this time period. If the body is filled with a color like white, green, or a light color, then the security was up in that period of time, and the bottom of the body is the opening price and the top is the closing price. On the other hand, if the body is filled with a color like black, red, or some other dark color, then the security was down in that period of time, and the top of the body is the opening price and the bottom is the closing price.
The wick shows the extremes of price action during the time period. The upper wick is the line extending from the top of the body to the highest price ever reached (during the specified time period), and the lower wick is the line extending from the bottom of the body to the to the lowest price ever reached. Sometimes, one or both of the wicks are not seen because the opening or closing price is also the highest or lowest price.
Here is some more terminology: Let’s say that we have a chart where each candle represents a day, and there are enough candles to show the past year. That would be called a one-year daily chart. If each candle represented an hour, and there are candles going back 180 days, then it would be a 180 day hourly chart.
Also, be careful not to confuse candlesticks with OHLC (open-high-low-close) charts. Candlesticks have a rectangular body, while OHLC charts are lines with tick marks on the vertical line. The candlestick has many advantages over the traditional line chart. When we get into more analysis, we will see that candles can show buying and selling pressure throughout the day and provide earlier indications of market reversals. As a result, many traders use them and some even base strategies off of them. However, candlesticks do not always tell the sequence in which events happened (e.g. whether the high or low came first). Many websites, like FINVIZ and TradingView, use candlestick charts by default.
– Michael Trehan