The True Value of Mum Charts: Why Do Investors Prefer Them?

When trading in cryptocurrency, stocks, commodities, or any financial asset markets, choosing the right tools is key to success. This is where candlestick charts come into play. While the meaning of candlesticks may seem simple, in practice they are a highly powerful analytical method. Each candlestick shows the open, close, high, and low prices within a specific time period. The combination of these four data points provides investors with an in-depth understanding of market movements.

Why Is the Meaning of Candlesticks So Important?

Candlestick analysis is not just about showing price movements. The meaning of candlesticks forms the basis of traders’ buy-sell decisions. The body of each candlestick (the open and close levels) and its shadows (the high and low points) clearly reveal the market psychology and price direction within a certain period.

Analysis can be performed over different timeframes, from one second to one month. This flexibility increases the significance and understanding of candlesticks for both short-term traders and long-term investors.

History: From Japanese Rice Traders to Modern Markets

The concept of candlestick charts was developed in 18th-century Japan by rice trader Munehisa Homma. Homma combined four indicators that could predict future demand with surprising accuracy and introduced a systematic trading method that identified entry and exit points for the first time. At that time, rising trends were shown with white candles, falling trends with black candles.

As technology advanced, the colors of candlestick charts were standardized, and modern trading platforms allow investors to choose their preferred colors. Today, green (bullish candle) indicates an upward trend, while red (bearish candle) indicates a downward trend.

Why Are Candlestick Charts Still Among the Most Popular Tools?

Candlestick charts, widely used by investors and traders, are preferred for various reasons:

Universal Applicability: Japanese candlestick charts can be applied to all financial assets, including forex, stocks, cryptocurrencies, CFDs, and commodities. Whether professional or novice, everyone can learn this system.

Impressive Naming System: The original and memorable names of candlestick patterns (hammer, hanging man, star, etc.) make it easy to remember the patterns.

Proven Accuracy: With centuries of history, candlestick analysis has been refined over time and has achieved a certain level of reliability.

Integration with Other Techniques: Candlestick analysis can be used in harmony with other technical analysis tools like moving averages, RSI, MACD. This combination increases the likelihood of profitable trades.

The Fundamental Difference Between Candlestick Charts and Bar Charts

While bar charts and candlestick charts contain similar information, their presentation methods are entirely different. The most distinctive feature of candlestick charts is the body, which is a thick section showing the range between open and close prices. This body distinguishes candlestick charts from bar charts and makes them more meaningful.

Bullish Candles (Rise): Shown in green or white. Indicates that the opening price is lower than the closing price, meaning the price has risen. The candlestick body clearly displays this upward movement during the trading period.

Bearish Candles (Fall): Shown in red or black. Indicates that the opening price is higher than the closing price, meaning the price has fallen.

Shadows: The upper and lower shadows of each candlestick indicate the highest and lowest prices during the period, respectively.

In bar charts, the opening and closing prices are shown with small horizontal lines on the sides of the bars. This representation does not create as strong a visual impact as candlestick charts.

What Do Candlestick Charts Offer Investors?

Each candlestick provides four critical data points: high, low, open, and close. This information supports investors in:

• Determining trend direction
• Identifying reliable entry and exit points
• Predicting upcoming reversals
• Measuring market volatility and tracking sentiment changes

Candlestick charts are an essential tool in every technical analyst’s arsenal. The deeper the understanding of candlestick meanings, the better you can interpret market movements.