Just like a candle lights the way forward (at least in novels by the Bronte sisters and the like), analysts use candlestick charts to try to predict trends in financial markets. Invented by Japanese rice traders in the eighteenth century, candlestick charts pack a lot of data for multiple time frames into simple color-coded "candlesticks." They help to predict whether a price will go up or down based on things like previous opening and closing prices.
Data needed to create a candlestick chart include: the opening price, the high point, the low point and the closing price in a specific time period. There's a thick body representing the difference between the opening and closing prices, and then little lines poking out above and below to show the high and the low. It's then color coded to indicate if the closing price was higher or lower than the opening price. It will be white or green if it closed higher or black or red if it closed lower.
The chart is basically saying "the stock traveled this far during the day" (space between the opening and closing prices) "but also took these detours" (the little lines showing the high and low). They are called candlestick charts because they vaguely resemble candles, with their thick middle and their little wick-like line sticking out on top (and on the bottom...we guess that's a manufacturing error at the candle factory).
There are all kinds of fancy names for the patterns you can discern from candlestick charts. There's a "bullish engulfing pattern" at the end of a downtrend or "bearish engulfing pattern" for the end of an uptrend. How about a "harami" or "evening" or "morning" star that indicates a reversal pattern? An example of candlestick charts can be found at https://www.mql5.com/en/market/product/1311.
Related or Semi-related Video
Finance: What is a Chartist?26 Views
Finance allah shmoop What is a chartist Well here's a
chart and here's a chart and here's a chart All
right Well these are pages from the investing bible of
a chartist A chartist is an investor really a traitor
as they tend to own stocks for a much shorter
period of time than a longer term Really invest or
type person a chartist relies solely on the patterns The
pattern's right there These are all patterns imputed by the
charts that they you know sitting poor threw for hours
and hours So check out this chart see how the
plotted data closely follows the characteristic line there The characteristic
line basically is plodded through all those dots Yes So
they're going to stare at that try to figure out
where that line is going in the future right Get
the crystal ball or all right Well let's look at
this one where the data forms what looks like Well
the head and shoulders of someone who you know doesn't
have a neck that's Just common pattern in trading And
you know if you stopped looking at it and two
thirds of the way through there it's heading down Well
Maybe you'd be short the stock for a few days
and then you see it bottoming and then you'd be
long and try to make money that way Good luck
All right len look at this chart Where is right
here where the data appears to We'll break away from
the established pattern which was all just kind of boring
Lee along down here And then suddenly everything goes up
Yeah start doing its own thing Well maybe the company
reported a good quarter or ah you know the government
cut taxes again Everything went up So these were the
tools of the chartist The chart's a chartist is the
opposite of a fundamental investor meaning that she doesn't know
or care what the company does for a living Really
she doesn't care about their p e ratio nor their
profit margins nor their debt levels on their balance sheet
nor much of anything fundamental about how their business runs
Chartist just care about the pattern they glean from the
charts and all the charts always work until they don't
And what happens when the meteor hits that is that 00:02:06.0 --> [endTime] predictable on a chart Ah
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