Type of financial chart
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A candlestick chart (also called Japanese candlestick chart or K-line) is a style of financial chart used to describe price movements of a security, derivative, or currency.
While similar in appearance to a bar chart, each candlestick represents four important pieces of information for that day: open and close in the thick body, and high and low in the \"candle wick\". Being densely packed with information, it tends to represent trading patterns over short periods of time, often a few days or a few trading sessions.
Candlestick charts are most often used in technical analysis of equity and currency price patterns. They are used by traders to determine possible price movement based on past patterns, and who use the opening price, closing price, high and low of that time period. They are visually similar to box plots, though box plots show different information.
Candlesticks can also show the current price as they\'re forming, whether the price moved up or down over the time phrase and the price range of the asset covered in that time.
Rather than using the open, high, low, and close values for a given time interval, candlesticks can also be constructed using the open, high, low, and close of a specified volume range (for example, 1,000; 100,000; 1 million shares per candlestick). In modern charting software, volume can be incorporated into candlestick charts by increasing or decreasing candlesticks width according to the relative volume for a given time period.
Candlestick charts are a visual aid for decision making in stock, foreign exchange, commodity, and option trading. By looking at a candlestick, one can identify an asset\'s opening and closing prices, highs and lows, and overall range for a specific time frame. Candlestick charts serve as a cornerstone of technical analysis. For example, when the bar is white and high relative to other time periods, it means buyers are very bullish. The opposite is true when there is a black bar.
A candlestick pattern is a particular sequence of candlesticks on a candlestick chart, which is mainly used to identify trends.
Heikin-Ashi (平均足, Japanese for \'average bar\') candlesticks are a weighted version of candlesticks calculated in the following way:
Close = (real open + real high + real low + real close) / 4
Open = (previous Heikin-Ashi open + previous Heikin-Ashi close) / 2
High = max(real high, Heikin-Ashi open, Heikin-Ashi close)
Low = min(real low, Heikin-Ashi open, Heikin-Ashi close)
The body of a Heikin-Ashi candle does not always represent the actual open/close. Unlike with regular candlesticks, a long wick shows more strength, whereas the same period on a standard chart might show a long body with little or no wick.
Relationship to box plots
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Candlestick chart are similar to box plots. Both show maximum and minimum values. The difference between them is in the information conveyed by the box in between the max and min values.