Candlestick Charting

Candlestick charts have been around for hundreds of years. They are often referred to as "Japanese Candles" because the Japanese would use them to analyze the price of rice contracts.

Similar to a bar chart, candlestick charts also display the open, close, daily high, and daily low. The difference is the use of color to show if the stock was up or down over the day.

The candlestick chart below for AT&T (T) was created at the Disnat.com client site. Clear bars indicate the stock price rose, blue indicates a decline:

Candlestick charts have a "love or leave" relationship with investors. People either love candlesticks and use them frequently, or are completely turned off by them.

There are several patterns people look for with candlestick charts, here are a few of the popular ones and what they mean:

This is a bullish pattern, the stock opened at (or near) its low and closed near its high.

The opposite of the pattern above, this is a bearish pattern. It indicates that the stock opened at (or near) its high and dropped substantially to closed near its low.

Called "The Hammer," this is a bullish pattern only if it occurs after the stock price has dropped for several days. A Hammer is identified by a small body along with a large range. The theory is that this pattern can indicate that a reversal in the downtrend is in the works.

Called a "star," this pattern is used in others such as the "doji star." For the most part, stars typically indicate a reversal and or indecision. There is the possibility that after seeing a star there will be a reversal or change in the current trend.

Keep in mind there are over 20 other patterns used by technical analysts for candlestick charting.

Now, let's take a look at a more traditional style of charting stock price performance called "Point & Figure Charting."