Of the two chart types, many would argue that candlestick charts are the preferred type for trading. They give similar information when one is looking at a single time period, but more important, they visually signal other clues about the market when one is viewing a larger time frame. There are important things to note about the differences between bar charts and candlestick charts (see Figure 3-5):
• The color of the bar on the chart depends on the closing price of the previous bar. If the closing price of the current bar is higher than the closing price of the previous bar, the bar will be green (or white).
• The color of the candlestick depends only on the position of the close relative to the open for that time period.
Candlestick versus Bar
Figure 3-5 Difference between a Candlestick and a Price Bar
• If the market closes higher than it opened, the candle will be green (or white).
• It's usually easier for beginners to work with candlestick charts.
• Candlesticks also provide the additional visual signals of trend shifts.
For examples of both types of charts in color go to www.Trading-U.com.
Candlestick Shapes: Body Size
One way candlesticks provide information about market behavior is through the length of the candle body. Figure 3-6 shows candles with long and short bodies. Long bodies indicate strong price movement, and short bodies tend to indicate indecision.
Long and Short Candle Bodies
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