Stock Candlestick Charts

The earliest known version of candlestick charting was developed in the 17th or 18th century and is credited to a Japanese rice trader, Munehisa Honma. Whether or not Honma developed candlestick analysis is immaterial as candlestick charting has evolved throughout the years into what we know today.

The current version consists of 12 major patterns and 40 reversal and continuation patterns as well as a slew of subpatterns. These patterns, when taken as part of a comprehensive analysis strategy, can provide crucial trading data. Like technical analysis, you should never rely only upon one type of analysis. As the Prophet always says, "Always know your investment and strategy well before risking any money." This includes your strategy for analyzing your investment. A few of the major patterns are provided HERE. The rest of the patterns can be found in the books in the Recommended Reading section.

The typical candlestick pattern consists of a body and an upper and lower shadow. If the closing price of the day is lower than the opening price then the body is colored red (sometimes black) otherwise the body is white. The shadows indicate the high and low prices throughout the day. The candlestick does not indicate how the price fluctuated throughout the day however.

If the opening and closing prices are the same then the body of the candlestick disapears and becomes a horizontal line. This type of pattern is called a Doji and indicates indecision or confusion in the marketplace.

Candlestick patterns can come in 1 to 5 day patterns that can become confusing. Everything matters here. Color, size, length of shadows, length of body, position of components. For example, the Shooting Star pattern, which indicates a reversal of an uptrend, consists of a series of upward movements, a solid white body with normal shadows, a gap, followed by a short body with only an long upper shadow.

Candlesticks have been in use for hundreds of years and can be used with virtually any security from stocks to futures. Do your studying first though before tackling Candlesticks. Several stock charting software programs have candlestick analysis built into their packages. Go HERE to check out a couple of these.

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