Candlestick charts are a combination of a line chart and a bar graph, thus they represent more information than what is provided by either of the one alone. These charts indicate the users whether the buyers or the sellers dominate the market. In binary options trading, it is very essential to know how these charts can be useful in predicting the best points to buy and sell.
Candlestick charts are so named because of the thin bars that they are composed of which display the opening and closing stock price as well as its high/low range which resemble the wick of a candle.
Candles are arranged along a chart, in a pattern similar to a simple line graph, however they contain more information than a simple line graph can give.
The Bars – Each bar is represented by a hollow or filled in rectangle that indicates whether the stock closed above or below its initial selling price, respectively. A longer rectangle represents either increased buying or selling pressure due to the behavior of investors during the time period. Most candlestick bars are red and green. Red bars denote the assets price closed lower than it opened for that time period. Green bars denote that the asset closed higher than it opened for that period. The size of the bar represents the price movement of the asset from open to close.
The wicks – also known as shadows – on the top and bottom of each candle is a line. This line shows the highest and lowest points reached by the asset during that particular time period. Long wicks tend to show a shift in behavior. Either, buyers drove prices up and then, trading slowed as investors refused to pay the high prices, or vice versa. The top of the wick is the high price the asset traded for during that candle. The low wick is the lowest price the asset traded for during that time period.