Chart Types & Japanese Candlesticks

The line chart is the simplest way to visualize price data. It connects the closing price of each session with a continuous line, giving you a clean view of the overall trend direction.

• Advantage: Cuts through the noise. You can instantly see whether RELIANCE has been in an uptrend, downtrend, or sideways range over the past six months.
• Advantage: Easy to compare two stocks on the same chart — overlay INFY and TCS line charts to see which IT stock performed better in a given quarter.
• Disadvantage: It ignores the open, high, and low data. You lose all information about intraday volatility and sentiment.
• Disadvantage: A stock that opened strong but crashed to close flat looks identical to a stock that traded flat all day. The line chart hides the drama.

The bar chart (also called an OHLC bar chart) shows all four data points — Open, High, Low, and Close — for each session. Each trading session is represented by a single vertical line with two horizontal ticks.

• Vertical line: Stretches from the session low to the session high, showing the full price range.
• Left tick: Marks the opening price.
• Right tick: Marks the closing price.

Here is how a sample five-day period for HDFCBANK might appear in bar chart data:

The candlestick charting technique originated in 18th-century Japan, developed by a rice trader named Homma Munehisa from the town of Sakata. Homma traded rice futures on the Dojima Rice Exchange in Osaka and is said to have recorded over 100 consecutive winning trades by reading market sentiment through price patterns.

Homma's techniques remained largely within Japan for over two centuries. It was not until the late 1980s that Steve Nison, an American technical analyst, encountered these methods and introduced them to Western markets through his work. Since then, candlestick charts have become the most widely used charting tool globally.

The reason candlesticks became so popular is simple: they encode the same OHLC data as a bar chart, but use colour and shape to make bullish and bearish sentiment immediately visible at a glance. A screen full of green and red candles tells a story faster than any other chart type.

Every candlestick has three parts: the real body, the upper shadow (wick), and the lower shadow (tail). Together, they capture the full story of a single trading session.

• Real body: The thick rectangular area between the open and close. A large body indicates strong conviction. A small body signals indecision.
• Upper shadow: The thin line extending above the body up to the session high. A long upper shadow means sellers pushed the price down from its peak.
• Lower shadow: The thin line extending below the body down to the session low. A long lower shadow means buyers stepped in to defend a price level.
• Bullish candle (green/blue): The close is higher than the open. Buyers controlled the session.
• Bearish candle (red): The close is lower than the open. Sellers controlled the session.

Let us walk through a real example. Suppose TCS trades on a particular day with these numbers:

Since the close (Rs.3,470) is higher than the open (Rs.3,420), this is a bullish candle. The real body stretches from Rs.3,420 to Rs.3,470 (a Rs.50 range). The upper shadow extends Rs.15 above the close to the high of Rs.3,485 — meaning sellers briefly pushed back near the top. The lower shadow is only Rs.10 below the open to the low of Rs.3,410 — meaning the dip was quickly bought. Overall, this candle tells you buyers were firmly in charge.

The same stock can look bullish on a daily chart and bearish on a 15-minute chart. The timeframe you choose determines what kind of trading you are doing and what signals are relevant to you.

• For swing trading on NSE stocks, the daily timeframe is your primary battlefield. It filters out intraday noise while capturing meaningful moves over days to weeks.
• Always confirm your daily chart signals on the weekly chart. If both timeframes agree on the trend direction, your confidence in the trade should be higher.
• Shorter timeframes generate more signals but also more false alarms. A doji on a 5-minute chart is far less significant than a doji on a daily chart.