Manila, Philippines

How to Read Candlestick Charts for Beginners

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They say a picture paints a thousand words. Rightfully so. Even in stocks and stock charts. One such chart is the candlesticks chart. I want to deal with the basic first: what do these Christmas-themed candles mean?

These simple candles can spell the difference between a thousand peso gain or loss. And through the years, many books and blogs have been written about it. I myself remains to be a student of the candlestick charts and patterns. Because really, you can create a whole story by merely looking at the sticks and the trends. I won’t go into detail about its history, you can go to this site for more details and a detailed study. Or contact me for free ebooks on technical analysis.

As I’ve said, if fundamentals can tell you which stocks to invest on, technicals and charts can tell you when to enter or exit. In this post, I will share about the basics of how to read the sticks, plus share some useful sources on where to get more information about it.

I was just feeling a bit artsy fartsy hence I created below pictures. Study them for a moment.

Now for the basics:
  • A green or white candle depicts a price appreciation for that day (bullish), hence opening price is low while closing price is high
  • A red or black candle depicts a price depreciation for that day (bearish), hence opening price is high while closing price is low
  • The candle wick, or lines, or shadows show the highest and lowest prices of the stock for the day. If there are no such lines, it means that the opening / closing price were also the highest / lowest prices for the day

Types and Variations

There can be many different types and variations of these candles, each type depicting a different story. A long green candle may mean a bullish trend since the price appreciation covered a big price range. A long wick but short candle may mean price action was significant (upward or downward) but the momentum was not enough hence closing price remained near the opening price. A cross-like pattern (+) means that opening and closing prices were the same, but there were price actions both upward and downward. This can signify market indecisiveness or a change in trend given the push and pull from both sides. This page from Stockcharts gives us a whole lot of information.
In the Philippines
In our country, the PSE Website offers a candlestick chart for every stock. Likewise, COL Financial also provides charts for easier analysis. Did you know that you can also create a candlestick chart via MS Excel? But why bother right? Some helpful blogs on candlesticks and charts you might want to check out are:
As in horoscopes, these charts merely serve as our guide. And if you are a technical analyst, a day trader or short-term trader, then being a chart expert will be necessary. But if you are in for the long haul as a stocks investor, then a basic know-how of charts won’t hurt plus a steady nose for fundamentals.
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3 Responses

  1. […] want to start with this book by Peter Lynch. For technicals, there are many materials in the web on chart reading, Elliot waves, trend and momentum indicators etc. Read on economics especially in this increasingly […]

  2. Lily Earl says:

    This is so helpful, I really appreciate it. I was actually searching for articles like this one to help me and this is by far the most easiest to understand. Thanks so much.

  3. pen_name says:

    Thank you Lily Earl for the kind words. I hope you will find the other posts here instructive. Keep on reading and learning! 🙂

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