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The Western bar chart is made
up of four parts components, open, high, low, and close.
The vertical bar depicts the high and low of the session, while the left
horizontal line represents the open and the right horizontal line represents the
close.
Figure 1
The
Japanese Candlestick Line (Figure 2) uses the same data (open, high, low, and
close) to create a much more visual graphic to depict what is going on with the
stock. The thick part of the
candlestick line is called the real body. It represents the range between the session’s opening
and closing prices. If the
real body is red, it means that the close of the session was lower than the
open. If the real body is green, it
means that the close was higher than the open.
The lines above and below the body are the shadows. The shadows represent the session’s price
extremes. The shadow above
the real body is called the upper shadow and the shadow below the real
body is called the lower shadow. The
top of the upper shadow is the high of the day, and the bottom of the lower
shadow is the low of the day.
Figure 2
One of the main differences between the Western Line and
the Japanese Candlestick line is the relationship between open and closing
prices. The Westerner places the
greatest importance on the closing price of a stock in relation to the prior
periods close. The Japanese
place the highest importance on the close as it relates to the open of the same
day. You can see why the
Candlestick Line and its highly graphical representation of the open to close
relationship is such an indispensable tool for the Japanese trader.
To illustrate the difference, compare the daily chart plotted with
Western Lines (Figure 3) with the exact same chart plotted with Japanese
Candlestick lines (Figure 4). In
the Western bar chart as with the Japanese Candlestick chart, it is easy to
interpret the overall trend of the stock, but note how much easier it is to
interpret change in sentiment on a day to day basis by viewing the change in
real body color in the Japanese Candlestick chart.
Figure 3
Figure 4
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