This is a basic but important financial concept. Users may be beginners who are just starting to invest or are interested in markets such as stocks and cryptocurrencies but lack professional knowledge. Their question is very straightforward, with no additional background information, indicating they may just need a clear definition and key points.
The concept of candlesticks actually originated in Japan, but has been widely adopted in the modern financial system. I should first clarify its basic composition—four prices and two colors, which is the foundation for understanding charts. Users might most want to know 'how to interpret price movements from a candlestick,' so the meanings of body color and shadows should be emphasized.
Considering that the user may be a visual learner, I decided to use vivid descriptions when describing the features of candlestick shapes, such as 'candle shape' and 'the shadow like a wick.' Although I can't show pictures now, I later supplemented examples of different shapes (cross star, hammer, etc.) so that users can relate to them when they see actual charts in the future.
The user did not specifically ask about technical analysis, but since they mentioned candlesticks, it's likely they want to use them for market observation. Therefore, I added a section on application scenarios at the end, explaining how it helps judge trends and trading points. However, I avoided information overload and didn't elaborate on complex combinations.
By the way, providing historical context is quite important—many people do not know that candlesticks were invented by the Japanese in the 18th century. This helps users understand why it's called 'Japanese candlestick' and also adds interest to the explanation. Ending with 'core tool' emphasizes its practicality and gives users a clear cognitive anchor.
Candlestick (Candlestick), also known as candlestick chart or Japanese candlestick chart, is a form of chart used in financial markets (such as stocks, forex, futures, cryptocurrencies, etc.) to represent asset price changes over a specific time period. It originated in 18th century Japan (initially used to record rice prices) and has since been widely adopted in modern financial markets, becoming one of the core tools of technical analysis.
The core information contained in a candlestick (usually representing a day, an hour, a minute, etc.)
Four Key Prices:
Opening Price: The first transaction price at the beginning of the time period.
Closing Price: The last transaction price at the end of the time period.
Highest Price: The highest transaction price reached during the time period.
Lowest Price: The lowest transaction price reached during the time period.
Two Main Components:
Body: The thicker part located in the middle of the candlestick. It connects the opening price and the closing price.
Bullish Line/Red Up Green Down: If the closing price is higher than the opening price, the body is usually filled in red or hollow (or green, depending on software settings; commonly red up green down in China's A-shares), indicating price increase.
Bearish Line/Green Down Red Up: If the closing price is lower than the opening price, the body is usually filled in green or solid (or red; commonly green down red up in China's A-shares), indicating price decrease.
Shadow: A thin line extending from both ends of the body.
Upper Shadow: A line connecting the top of the body (closing price or opening price, depending on rise or fall) and the highest price. Represents the position that the highest price reached during the time period.
Lower Shadow: A line connecting the bottom of the body (opening price or closing price, depending on rise or fall) and the lowest price. Represents the position that the lowest price reached during the time period.
How Candlesticks Intuitively Display Market Sentiment
Long Bullish Line (Long Red): The body is long, usually with no or short shadows. Indicates strong buying power, significantly pushing the price up from opening to closing.
Long Bearish Line (Long Green): The body is long, usually with no or short shadows. Indicates strong selling power, significantly lowering the price from opening to closing.
Short Body/Cross Star: The body is very short or nearly a line (opening price ≈ closing price). Indicates a balance of power between buyers and sellers during the time period, with market indecision.
Long Upper Shadow: Indicates that the price once surged but faced strong selling pressure and fell back (especially in an upward trend, which may be a signal of a peak).
Long Lower Shadow: Indicates that the price once dipped but encountered strong buying support and bounced back (especially in a downward trend, which may be a signal of a bottom).
No Shadow: Indicates that the opening price or closing price is the lowest or highest price during the time period, showing that market sentiment is heavily one-sided (opening at the lowest and rising all the way, or opening at the highest and falling all the way).
The Application and Importance of Candlestick Charts
Core of Technical Analysis: Candlesticks are one of the most important tools for technical analysts.
Identifying Price Patterns: Single candlesticks, combinations of two candlesticks (such as engulfing patterns, dark cloud cover, piercing patterns, etc.), or combinations of multiple candlesticks (such as head and shoulders, triple tops/bottoms, triangles, etc.) can form specific patterns, often indicating potential future price movements (reversal or continuation).
Judging Market Sentiment: By observing the color of the candlestick, the size of the body, and the length of the shadows, one can intuitively sense the power comparison between buyers and sellers and the market sentiment (greed, fear, hesitation).
Finding Support and Resistance Levels: Areas formed by dense trading zones or repeatedly tested highs and lows on the candlestick chart are often regarded as support or resistance levels.
Assisting Trading Decisions: Traders use candlestick patterns, combined with other technical indicators (such as moving averages, MACD, RSI, etc.) and trading volume, to formulate entry, exit, and stop-loss strategies.
Summary
A candlestick is a chart that visually presents four key pieces of information about price changes within a specific time period (open, high, low, close) in the form of intuitive 'candles.' It not only clearly shows whether the price is rising or falling but also reveals the intensity of price fluctuations and the process and results of the power struggle between buyers and sellers through the size of the body and the length of the shadows. Understanding candlesticks is the foundation for interpreting market language, conducting technical analysis, and formulating trading strategies.
You can think of candlestick charts as the market's 'ECG'; each 'candle' records the fierce battle between bulls and bears during that time!
