Technical side: What are Candlesticks?

source: http://www.candlestickpicks.com/

First of all lets know where Candlesticks came from. Let's borrow some history information from Investopedia.com

The candlestick techniques we use today originated in the style of technical charting used by the Japanese for over 100 years before the West developed the bar and point-and-figure analysis systems. 

source: http://optionalpha.com

In the 1700s, a Japanese man named Homma, a trader in the futures market, discovered that, although there was a link between price and the supply and demand of rice, the markets were strongly influenced by the emotions of traders. He understood that when emotions played into the equation, a vast difference between the value and the price of rice occurred. This difference between the value and the price is as applicable to stocks today as it was to rice in Japan centuries ago. The principles established by Homma are the basis for the candlestick chart analysis, which is used to measure market emotions surrounding a stock. Read more

The Concept of Candlesticks

source: http://stockcharts.com

A candle is formed as per above illustration. A candle has 3 parts: the upper shadow/wick, the body, and the lower shadow/tail. Relevant information as shown above correspond to the Open, High, Low, and Close information we get from trading.There are two basic candles one is the hollow candle(which is mostly green on other charting programs) and the filled/black candle(which is sometimes red in charting programs). 

A Hallow Candle is a bullish candle because it shows that the stock closed higher than its opening. Filled or black candle is a bearish candle indicating that the stock closed lower than its opening. Now the difference between the opening and closing can be seen in a candle's body length. An elongated candle means that the opening and the closing are far apart indicating a very high interest of the market. On the other hand a short body indicates a low interest and may even indicate that the stock is bound to consolidation.

Below is the candlestick chart of PSEi as of July 27, 2011 for our illustration:

PSEi as of July 27, 2011

As you can see above the green candle indicates a bullish trend from mid-June to the first week of July. Also if you noted in the end of June a successive long green candles led to one of the all time high of the PSEi with a sudden reversal indicated by the red candles but then it recovers with another series of elongated green candles that led to the 4506 finish of PSEi.

Candlesticks has become popular because it gives the stock analyst the feeling of the general market through the color and length of the body and shadows. In a glance one can see what is the market action and what is the likelihood of the next. The body of the candle generally indicates when a stock is bullish or bearish. The more it is elongated, the more it states how bearish or bullish it is. 

The wick or the tail also indicate at what price investors are willing to buy or sell. If the wick and tail is short it indicates that price action is within the range of the candle's body while longer shadows indicate that trading has gone beyond the range of the open and closing. 


Note: This is the first part of the topic regarding candlesticks. More postings will be made in the future.

  

Investing word of the day : Chart

If you go to the PSE website and look up a stock it will lead you to the stock information page of that stock. 

To better understand this section let us define what chart means which in investing is called price chart:

(information taken from http://stockcharts.com/)


A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.

On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right.

While technical analysts use charts almost exclusively, the use of charts is not limited to just technical analysis. Because charts provide an easy-to-read graphical representation of a security's price movement over a specific period of time, they can also be of great benefit to fundamental analysts. A graphical historical record makes it easy to spot the effect of key events on a security's price, its performance over a period of time and whether it's trading near its highs, near its lows, or in between.  


Layman's explanation: 

A chart is a picture that an investor can see how the price of a certain stock move over a period of time. 

This is important because it is where one can see the trend. Also one can use this as basis on how a stock react to certain events in the company. Knowing this information gives you an idea how will the trend be in the next couple of days , weeks or months and thus help you in your investing decisions whether to hold, sell, or buy.

Investing word of the day : Chart

If you go to the PSE website and look up a stock it will lead you to the stock information page of that stock. 

To better understand this section let us define what chart means which in investing is called price chart:

(information taken from http://stockcharts.com/)


A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.

On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right.

While technical analysts use charts almost exclusively, the use of charts is not limited to just technical analysis. Because charts provide an easy-to-read graphical representation of a security's price movement over a specific period of time, they can also be of great benefit to fundamental analysts. A graphical historical record makes it easy to spot the effect of key events on a security's price, its performance over a period of time and whether it's trading near its highs, near its lows, or in between.  


Layman's explanation: 

A chart is a picture that an investor can see how the price of a certain stock move over a period of time. 

This is important because it is where one can see the trend. Also one can use this as basis on how a stock react to certain events in the company. Knowing this information gives you an idea how will the trend be in the next couple of days , weeks or months and thus help you in your investing decisions whether to hold, sell, or buy.

Investing word of the day : Chart

If you go to the PSE website and look up a stock it will lead you to the stock information page of that stock. 

To better understand this section let us define what chart means which in investing is called price chart:

(information taken from http://stockcharts.com/)


A price chart is a sequence of prices plotted over a specific time frame. In statistical terms, charts are referred to as time series plots.

On the chart, the y-axis (vertical axis) represents the price scale and the x-axis (horizontal axis) represents the time scale. Prices are plotted from left to right across the x-axis with the most recent plot being the furthest right.

While technical analysts use charts almost exclusively, the use of charts is not limited to just technical analysis. Because charts provide an easy-to-read graphical representation of a security's price movement over a specific period of time, they can also be of great benefit to fundamental analysts. A graphical historical record makes it easy to spot the effect of key events on a security's price, its performance over a period of time and whether it's trading near its highs, near its lows, or in between.  


Layman's explanation: 

A chart is a picture that an investor can see how the price of a certain stock move over a period of time. 

This is important because it is where one can see the trend. Also one can use this as basis on how a stock react to certain events in the company. Knowing this information gives you an idea how will the trend be in the next couple of days , weeks or months and thus help you in your investing decisions whether to hold, sell, or buy.