Many new investors understand that the only way to make money in the stock market is to find a way to "buy low and sell high." But then they look at the constant fluctuations of the most popular stock market indices, and they start to wonder how it is ever possible to know that a price has sunk low enough to make it a good time to buy, or risen high enough to make it the most profitable time to sell. While some investors base their predictions on social demand, company financial history and perceived value, technical analysts choose to watch a stock's trends and patterns over time. The candlestick chart is one of the oldest stock charts, and every new investor should become comfortable with it.

In order to fully understand how the candlestick chart can be used to track stock prices and inform your future decisions of whether to buy or sell at a certain time, you have to understand how the chart was created, and what its original purpose was. Created by early Japanese rice traders, the candlestick is a modification of the traditional bar chart, which indicates increases or decreases in the price of a certain stock. The body of the candlestick can be solid or hollow, and thin lines, are often attached at the top or bottom of the body show the range of prices traded during that specific period.

One of the most interested characteristics of the basic candlestick chart is that you can learn a lot about the day's market activity just by paying attention to the nuances that are contained in it's the form of color, size, and length of its elements. When looking at a chart, the black or red candle stick indicates that the stock closed lower than its opening price, a net loss. Candlesticks that have a white or green body, however, indicate that the stock closed higher than its opening price, representing a net gain for the day.

Once you become more familiar with it, you might be tempted to think that the candlestick chart can tell you everything you need to know about the daily stock market activity, but there are some things that this chart is unable to communicate. This chart will be unable to tell you the different price points traded during a particular day, as the body is only able to indicate opening and closing prices, and the shadow can only indicate the range of prices.