InvestorQ : I keep hearing discussions on Japanese Candlesticks. Are they also useful charting patterns in technical analysis?
Aditi Sharma made post

I keep hearing discussions on Japanese Candlesticks. Are they also useful charting patterns in technical analysis?

Answer
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Ria Jain answered.
1 year ago


In a way candlestick charts are an extension of bar charts. They cover the same data points as a bar chart the only difference is that data is presented in a better and more elegant manner. Instead of the bar chart representing the Open, low, high and close as points, the candlestick chart represents these various points in the form of closed rectangles. The open and close are captured as the limits of the rectangle whereas the highs and lows are captured as lines from the rectangle. As mentioned earlier, the data coverage is exactly the same as the bar chart but the presentation is more elegant and therefore it offers easy interpretation. The candlestick also uses colours and shading to capture the trend of the stock. So, if the close of the stock is higher than the open then the chart will be un-shaded and if the close of the stock is lower than the open then the chart will be dark shaded. In between, the relative gap between the open and the close price can be understood with the help of various degrees of shading. The candlesticks are pictorially a better way of representing volatility risk and give a better idea off risk-adjusted returns on the stock.