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In Finance, what is a Red Candlestick?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 11 September 2016
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A red candlestick is a type of symbol used in a system of charting the movements of a stock price. The red indicates that the stock price was lower at the close of one day than it was the day before. The red candlestick will then be either solid or hollow depending on the price change across the day.

The candlestick chart is an alternative to more traditional line graphs. As with a line graph, it has a vertical axis showing the stock price and a horizontal axis showing time, specifically each day of trading. Unlike a line graph, it does not join together each day's figures. Instead it displays a "candlestick" for each day, consisting of a rectangular block with vertical lines above and below it.

Looking at a candlestick on the graph from top to bottom, the first vertical line runs from the point marking the stock's highest market price during the day down to the point marking the opening or closing price, whichever is higher. There is then a rectangle shape from this point running down from the opening price to the closing price, or vice versa if the closing price is higher. Finally, there is another line running down to the lowest price during the day. In the event that the opening or closing price was also the highest or lowest price of the entire day, one or both of the vertical lines may be missing.

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Coloring and shading are also used to convey information. The rectangle, or the "candlestick," will be green if the closing price is higher than the closing price from the previous day. A red candlestick shows the closing price is lower than the closing price from the previous day.

Meanwhile, the rectangle will be hollow if the closing price is higher than the opening price. The rectangle will be solid if the closing price is lower than the opening price. Without this indicator, it would be much more difficult to see the direction of movement during the day.

This system allows users to see at a glance the patterns of overall movement and the volatility of the stock price. For example, a long red candlestick that is hollow shows that a stock has not recovered fully from the previous day, but has begun a strong upwards movement. Contrastingly, a short red candlestick that is solid suggests that a slump is continuing, but the pace of decline may have slowed.

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