Knowing a security's closing price relative to its opening price during a certain period is vital information. Candlestick charts allow you to quickly identify the days when a closing price is above an opening price and vice versa.
I like to think of the daily price action as a battle between bears and bulls. Bears win when the price of a security closes lower than its open, and bulls win on the days when the close settles higher than the open.
Figure 2-2 is a great example of bearish and bullish days on a candlestick chart. Although the two candlesticks are the same size and shape, you can tell the difference between a bear and a bull:
^ The bear: The black filled-in candlestick indicates a bearish performance by the security because the close is much lower than the opening price.
^ The bull: The hollow (white) candlestick indicates a bullish performance, meaning that the opening is lower than the close.
Chapter 1 covers hollow candlesticks that show a higher close than open and a filled-in candlestick that shows a lower close than open.
Understanding the ways that prices are trending is very useful information when making buy-or-sell decisions. The old saying "The trend is your friend" is a constant reminder that you always want to be on the more dominant side of price action. By recognizing whether the bulls or bears are the more dominant group, you can be conscious of the trend and better prepared to stay on the right side of the market.
Bearish and bullish days on a candlestick.
The terms bulland bearhave been in the trading lexicon for many years. Both terms apply to people and market trends. A bullis a market participant that expects or wants the market to move higher, but it is also an expression to explain when the market goes up: bullish market. A bear, on the other hand, expects the market to decline (person) and indicates a declining market. But where did these terms come from?
Although there's some debate over the origins of the two terms, they may be attributed to a man named Thomas Mortimer, who wrote about the precursor to the London stock exchange in the late 1700s. He wrote that a bull bought stocks without putting any money down with the hope of selling at a higher price before having to settle up. And according to Mortimer, a bear sold stock he didn't own without putting up any money also hoping to exit the position at a profit before he was forced to settle up.
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