Candlestick charts were developed by Japanese rice merchants to track the price action of rice futures in the 1700s. Japanese candlesticks were first introduced to the United States through a book titled “Japanese Candlestick Charting Techniques” by Steve Nissan in 1991. The candlestick chart has become standard on almost all platforms and is the most popular style of chart used by traders. The chart utilizes the opening, high, low and closing price data per specified time interval to generate a candlestick, which is plotted on a price chart.
The candlestick is composed of three parts: the body, the upper tail and lower tail. Tails are also known as wicks (shadow). The body is composed of the opening price and closing price for the time interval also known as the period. The body is colored either green or red. A green candle indicates the closing price was higher than the opening price, which is considered bullish since the net result is price rise.
A red candle indicates that the closing price is lower than the opening price, resulting in a net price drop, which is bearish. The upper and lower tails are two thin lines extending from the top and bottom of the body towards the highest price and lowest price for the period. Traders often search for specific candlestick pattern formations to generate trade signals