The Candlestick Standard Chart
Indicates The open price, high price, low price, and close price.
if the price trends up, the candlestick is usually green and the open price is at the bottom of the candlestick.
The high price during the candlestick period is indicated by the top of the tail/line/shadow above the candlestick body. If the open/close was the highest price, then there is no upper tail/line/shadow.
The low price is indicated by the bottom of the tail/line/shadow below the candlestick body. If the open/close was the lowest price, then there is no tail/line/shadow.
The last price traded during the candlestick period, indicated by either the top (for a green/white candle) or bottom (for a red or black candle) of the body.
- As a candle forms, it constantly changes as a prize moves. The open price stays the same, but until the candle. As completed, the high and low prices are changing.
- The candlestick color might also change. It may go from green to red, for example, if the current price was about the open price but then drops below it.
You can see the direction the price moved during the candlestick. By the color and positioning of the candlestick.
- if the candlestick is green, the price close about the open and this candle will be placed above and to the right of the previous one.
- If the candlestick is red, the price closed below where it opened and this candle will be below and to the right of the previous one.
The distance between the top of the upper tail/line/shadow and the bottom of the lower tail/line/shadow is the range the price moved through during the candlestick period.
The price range can be calculated by subtracting the low price from the upper price.
Volume is one of the most basic and beneficial concepts to understand when trading stocks. Volume is defined as, “the number of shares (or contracts) traded during a given period of time.” This means each time a person sells or buys shares of a stock, that is considered volume.
Tallying volume is done by the market exchanges and reported via every major financial website. To hand tally volume, simply add the shares traded for each order on the fly (you can see orders real-time with any streaming last sale tool). For example:
- Trader 1 Buys 100 shares of stock
- Trader 2 Buy 500 shares of stock
- Trader 3 Sells 1000 shares of stock
Total volume is then 1,600 shares for this sequence. Again, volume increases regardless if it is a buy or sell order.
It is not uncommon for stocks to trade millions of shares per day. For example, the S&P 500 ETF (SPY) trades on average around 75 million shares per market session. This is literally Billions of dollars worth of stock changing hands every day the market is open. On the other hand, smaller company stocks, known as penny stocks, might trade only a few thousand shares in a given day.
Benefits of Tracking Volume
By understanding what volume is and how it is tracked, we can use this knowledge to help us make better informed trading decisions. There are two key benefits to tracking volume:
- Support and Resistance – Throw one pebble at a glass window and it may not crack or break, but throw 100 of different sizes and the chances of a break are far greater. Applying this to stocks, if one investor places an order to buy 100 shares of stock at the current Ask price, the stock may not move up. But, if 20 investors all place buy orders of different quantities, the stock is most likely going to move up in price because there are not enough sellers. Bottom line, to break through a key support or resistance level on a stock chart, volume is needed in quantity.
- Average Daily Volume – By knowing the total volume on a day, you can understand the power of influence on a given stock. The greater the volume, the more significant and overall meaningful the day was. High volume days are most often observed on earnings days or when news is released. Plotting the average daily volume also allows us to identify accumulation and distribution days on a stock chart, which can be used to identify current momentum and predict future price movements.
Learning to identify volume trends and count accumulation or distribution day strings on a stock chart does take practice.