A candlestick chart is a variant of OHLC charts. It is a graphical representation of financial data in the form of vertical candlestick-shaped bars that are plotted about the x axis and y axis. Candlestick charts utilize candles with wicks at each end to represent price movements, specifically they often represent the fluctuations of securities, currency, and more.
The origin of candlestick charts is believed to be Japan. They were developed during the Meiji period. They were introduced into popular usage by Munehisa Homma. He was a rice trader that utilized the chart as a financial instrument. They found their way to the western world through Steve Nison's book titled, “Japanese Candlestick Charting Techniques.”
Candlestick charts are a cornerstone of technical analysis in the stock market, foreign exchange, and option and commodity trading. The body color and wicks represent market behavior. The wick represents the height and low of trade prices, and the body represents the trades at open and close. The body is also color-coded. Black indicates that a security closed lower than it opened. White or a lack of color indicates that it closed higher than it opened. Some users assign different colors with different meanings. Some users also omit the wick or the body.
Candlestick charts are capable of conveying fairly complex information while being simple in design. They are technically a combination of a line and bar chart, and they offer more depth than both. They can reveal complex patterns. They also reveal patterns over time in a simple way, which allows the user to avoid sifting through data for specific information.
Heikin-Ashi charts are a variant of candlestick charts. They include data across multiple periods in order to allow trends to be more easily found or recognized. The size of the body or wick is used to represent the strength or weakness of aspects of trends. Many view Heikin-Ashi as a greatly improved candlestick chart.