Learn The Stock Market Lesson — Reading Candlesticks Charts and Point and Figure Charts
Candlestick Charts
On a candlestick chart, you will see a line of candles, each representing a day of trading. Every candle has a body and two wicks, one above and one below. The body of the candle represents the spread between the opening and closing prices. The tip of the top wick represents the high price of the day and the tip of the lower wick represents the low price of the day.
Candlestick chartists believe that the most important piece of daily data is the relationship between the opening and closing prices, represented by the body of the candle. If prices close lower than they opened, the body is black and if the prices close higher, the body is white.
The downside to using candlestick charts is that the candles take up a lot of space. For example, a bar chart shown on a computer screen can show six months of daily data, without having to adjust the scale. Candlestick charts, in that same space, will only reveal about two months of data.
Point and Figure Charts
Point and figure (P&F) charts are based only on prices and disregards volume. Unlike bar and candlestick charts, they do not have a horizontal time scale. Point and figure charts consist of columns that have a series of stacked Xs or Os. A column of Xs is used to represent a rising price, while a column of Os represent a falling price.
P&F charts make congestion areas stand out, which helps traders find levels of support and resistance.
