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Key Takeaways Candlestick charts reveal real-time market behavior, not yesterday’s headlines or predictions.
Every candle compresses open, close, high, low and direction into one visual signal.
The water streaming over Niagara Falls every second is nothing compared to the stock market, which is awash in more information every moment than a person could digest in a lifetime.
A lot of that information is what the stock market just did: “The Dow had its worst showing in nearly five months”, “GM misses analysts’ earnings estimates”…and so on. Then there’s no end to guessing what the market will do: “China’s throttling of magnet supply likely to depress industrial sector….”
Meanwhile, here’s the plain truth: The place where day trading money is made, and lost, is not in reports about the past, or in the talking heads’ predictions — it’s in knowing what’s happening right now, this very moment. The rubber meets the road where buyers meet sellers. And the way day traders keep their fingers on the pulse of what’s happening right this moment is through the lowly candlestick chart.
I say “lowly” because the multi-trillion-dollar world of high finance is comfortable using a method developed by a rice trader in Japan 300 years ago. Candlestick charts are alive and well centuries later because they compactly deliver five crucial bits of information.
Related: How to Keep the Right Perspective as a Day Trader
Look at any of the green and red candles above. Each candle represents an interval of time. Though a longer-term investor may have each candle represent one day, it’s typical for day traders to focus primarily on one-minute intervals (though we’ll have screens open for other intervals as short as ten seconds). For the one-minute chart, a new candle is displayed every minute that the market is open.
The fat part of the candle shows where the stock opened and closed. The next two pieces of information are the skinny wicks that many (but not all) candles have; those indicate the high and low for that interval. The fifth bit of information is the color of the candle. If it’s red, that means the price opened at the top of the fat portion of the candle and closed at the bottom of it.
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