Making and Understanding Candlestick Charts

When custom homebuilder-turned-stock-trader Ryan Litchfield discovered candlestick charting, he saw the symbols as "a mystery that seemed full of secrets." If you understood the patterns, he thought, "it would be like a crystal ball." As he experimented with the charts, he realized the patterns didn't predict the future, but could indicate a change in trend. Context helps define their meaning, Litchfield says, much like interpreting a driver's use of brake lights.

Of the many forms of technical analysis, candlestick charts may be the most difficult for beginners to grasp. The charts use symbols to transform a standard stock price chart into a graph that tells at a glance the stock's opening and closing price, as well as the day's high and low.