Traders and investors that trade in the equities, futures or forex markets almost always use candle charts or candlestick charts as their chart of choice. Candle charts have been used for hundreds of years starting with Japanese rice traders in feudal Japan to predict rice prices with great success. Because of this success, it's no wonder that candle charts have become the most popular among traders in the financial markets.

The power of the candle chart is found in the formation of candles over a certain period of time. Each candle in itself tells a miniature four part story for the time period selected. Time periods for candle charts are determined by the personal preference of the trader. Time periods can be anywhere from one minute to one year depending on the information needed and the type of trading, whether long term investing or short term scalp trading. Long term investors will usually request information over a period of months whereas a short term trader may look at a few days down to a one minute real time chart.

Each individual candle on a chart reveals four different elements for the time period in which the candle represents. The candlestick will show the opening, the high of the selected period, the low of the selected period and where the period closed. The thick part of the candle is called the real body and is often depicted in red or white depending on where the market closed for the time period selected. Traders and investors can choose what colors they wish their candles to be, however most candles that close above the previous period's closing price will be shown as green or white. Candles that close below the previous candlestick will often be rendered in red or black.

Each candlestick almost always has thin lines protruding from both the bottom and top of the real body of the candlestick which shows the high and low of the time period selected. These thin lines are called shadows. Shadows are very important since they can reveal a great deal about sentiment during the session. A long shadow on the top of a candle reveals that buyers were strong during the session but were not strong enough to overtake sellers. The opposite is the case if the candlestick has a long shadow coming from the bottom. Shadows show the extreme range that took place during the time period selected, revealing the high and low.

Acquiring to the knowledge to understand candlestick formations and patterns can enhance trading profitability and shorten the time period to locate and choose when to execute potentially winning trades. Because candle charts reveal so much information within each candle and preceding formations, traders use them almost exclusively as their chart of choice.