What is Candlestick Chart?
A candlestick chart (also known as a Japanese candlestick chart) is a financial chart used to describe price movements of securities or currencies.
Typically, it displays one day, and so a one-month chart may show the 20 trading days as 20 candlesticks.
The origin of candlesticks
Candlestick has a very long history, as they were born in Japan 100 years before the West came up with the bar and point-and-figure charts. In the 1700s, a Japanese man – Homma – discovered that, while there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. Candlesticks suggest that emotion by representing the size of price moves with different colors.
Steve Nison introduced them to European in his book, Beyond Candlesticks. Japanese Candlestick Charting Techniques Revealed. He stated there:
However, based on my research, it is unlikely that Homma used candle charts. As will be seen later, when I discuss the evolution of the candle charts, it was more likely that candle charts were developed in the early part of the Meiji period in Japan (in the late 1800s).
Today, they are commonly used in stock analysis.