Japanese candlestick

One mark carries four prices. The real body is the rectangle drawn between the open and the close, filled or coloured one way when the close finished above the open and the other way when it finished below. The thin lines running out of each end, called shadows or wicks, reach to the high and the low of that same interval. A single candlestick therefore holds exactly the four values a bar holds, arranged so the distance between the open and the close is the part the eye lands on first.

The notation is Japanese in origin, worked out in the rice markets of Osaka in the eighteenth century, and much of its vocabulary survives in translation: the body, the shadows, and the family of one, two and three candle formations named by appearance rather than by calculation. Doji, hammer and hanging man all belong to that naming scheme. The convention reached English language markets late, in the closing decade of the twentieth century, which is why older Western writing on charts discusses the bar chart almost exclusively.

What most often trips a reader up is that all four prices depend on where the interval was cut and on whose prices were recorded. Shifting the session boundary by an hour redraws every body on the chart without a single trade having changed, and an instrument dealt over the counter has no single closing price at all, so a candle shows one firm's recorded feed rather than a whole market's. Colour is not part of the definition either: the original notation used white and black bodies, most software now defaults to green and red, and either scheme carries the same information.

Whether the shapes carry anything beyond those four prices is a genuinely open argument. One camp holds that the visual grammar makes structure legible that a bar chart buries, and that the named formations describe recognisable episodes of buying and selling. The other observes that the two drawings contain identical data, so nothing readable in one is absent from the other, and that tested work on rule-coded formations reports effects that are small and unstable between markets and between periods.