Charts - Japanese Candlesticks

As I said, I am back with the charts. Those of you who do not have ant Technical Analysis (TA) introduction, charts may seem like strange alien entities. However every chart communicates with you and all you need to do is understand their language.

Let us first see what are the popular types of aliens…err, I mean charts. Those of us who have had some Excel exposure (who doesn't have) know the basics like Line charts, Bar charts (slightly different here), Pie charts (not applicable for stocks) and other. However from any chart for Index or Stock we need some information more than just the closing price. For a stock or index; its opening price, closing price, high/low price of the day and even volume of trade are very essential to properly analyse it.

This criterion shortens the list from many available chart types. A modified Bar chart called OHLC (Open-High-Low-Close… can’t be more obvious) and P&F (Point and Figure) charts fit the bill but what takes the cake and is most popular is Japanese Candlesticks. We will be using only these charts and only talk about them here… any of you interested in knowing more about other types, ping me.

Japanese Candlesticks:

Candlesticks are basically shapes as shown below. It consists of the body and two (each on either side - up and down) horns. There are two types of Candlesticks; One where the body is unfilled and other where the body is completely shaded. Unfilled body is used on positive day (where closing price is greater than opening price) and so by default, shaded body is used to depict a negative day where closing price is lower than opening price. Two horns on either side show the highest price (upside) and lowest price (downside) of the day.

This is as basic about them as we can get. More on these charts and their use in identifying basic trends as well as some basic sticks like doji, hammer, etc in next post. Taking cue from here, will post about finding Support and Resistances using these charts in Options Blog.

Before closing, I wish all of you and your loved ones a Very Happy, Joyous, Prosperous and Safe Diwali. Have a rocking time.