How Candlesticks are Drawn?

Posted By : Neha Gupta

I have read somewhere that no matter what you learn in life it can always help you trade in the stock market; may be not in the exact same words but this is what the writer meant I suppose. Initial learning of candlesticks can be easier if you apply the basics of mathematics, I have tried in this post to explain the formation of candlesticks with the help of points on line graphs. So let us have a look at how candlesticks are drawn.
Suppose intra-day stock prices move from 9:00 AM to 16:00 PM and they produce an upward moving line graph, as shown below:

Or a downwards moving graph as shown below :

To draw the daily candlestick you require the opening price, closing price, low & high of the daily movement. A green Candlestick expresses that market has closed above the opening price, in other words closing price of the stock is greater than opening price of the stock.

Chart below shows the price movement of a green candlestick formation:

A red candlestick expresses that market has closed below the price of the opening. In other words opening price of the stock is greater than the closing price of the stock.

Chart below shows the price movement of a red candlestick formation:

Each candlestick will have a different shape, red resembles a downtrend & green resembles an uptrend, and each means something different. Candlesticks tell us a stock price movement over a set period of time, for instance one hour, one day or one week. Regardless of the time frame, the form of the candlestick & its combination with the other candlesticks can be used to identify the market’s direction, its relative strength & weakness. That is the main purpose of the candlestick charts.