How does a “candlestick chart” work?
Japanese Candlesticks reflect a change in investor sentiment which will soon translate into a change of price direction within a certain time period. Even when the trend is in one direction, there are always changes within the trend and as a trader is focused on short-term movements, the concept of “don’t go against the trend” is a matter of relative time period. A trader looks for an equity, option or commodity with movement (volatility). Even though the long term trend might be in one direction, there are many directional changes as price snakes along its path. Traders make money on these mini changes within the trend. Construction of a “Candle” First of all, horizontal lines mark the opening and closing prices. A box is made of these end points and the extreme high and low prices are noted as vertical lines extending from the box. These are known as “Shadows”. If the closing price was higher than the opening price, the box is left blank. If the closing price is lower than the openin
