There are many types of chart you can use in your trading but the most powerful one is Japanese CandleStick. During the course, you will discover the power of candlestick and when you understand it, there is definitely no going back to whatever type of chart you used to use. It’s is gift that the Japanese has shared with the whole financial world.
There are basically for 4 types of price needed to draw a candle.
1. The Close ( the important one): the last trading price of the period ( it can be 1 hour, 1 day or 1 week depends on your trading period)
2. The Open Price: the first trading Price of the period
3. The High: the highest price of the trading period
4. The Low: the lowest price of the trading period
Beside the candle also have a body and 2 shadows. The body is the part between the Close and Open. The rest is the shadow and we have upper and lower shadow. (Figure below)
For example: Apple’s share (AAPL) on Jan 28 2015 opens at 117.39, then moves to make the High at 118.07, and the Low 115.27. At the end of the day, AAPL is traded and closes at 115.42.
This is not a rule but I and a lot of traders around the world use Blue and Red as candle’s color. As you can easily spotted when looking at the image, the candle with Close > Open will be Blue. On the other hand, if the Close < Open, the candle should be filled with Red. The rationale behind these colors is that the Red intuitively means “Alert! The price is going down”. While the blue one gives us more secure feeling and hence is used to mark the candle when the price goes up.
Having said all that, the color of AAPL on Jan 28 should be RED. Because the Close 115.42 < Open 117.39. As easy as pie right? Hang on, the most interesting part about CandleStick is yet to come!
** Software instruction: 1) For Metatrader 4: Press alt+2 to switch to candlestick chart To adjust the color: Right click on the chart -> Properties, then make sure you can adjust the color as below: