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Monday, June 16, 2008

color on the candles

Q: On my pc when I view a candlestick chart, I notice that some candles on a down day ( close lower than the open ) are shaded in black. My normal color default for down days is red. Does the black candlestick represent something else ? Thank you.

A: Take two! ;-) Traditionally, candlesticks have not been different colors. If the close was less than the open, you get a filled candlestick and if the close was higher than the open, you get a hollow (white) candlestick. You can see this by turning off the "Colored Prices" option in our SharpCharts tool.

Coloring candlesticks is actually more complicated than you might first think and there are several places where people can get confused. One thing that can confuse people is that there is no such thing as a white candlestick - it is hollow, not white. That means that if you are viewing a candlestick chart with volume bars behind it (the default for SharpCharts), you may see a colored volume bar showing through a hollow candle. If you find that confusing, select "Separate" from the "Volume" dropdown just below the chart.

The next thing to keep in mind is that when the market is open, we add another candlestick on the right side of the chart based on the current intraday quote. Because that candle is still in the process of developing, we draw it on top of a yellow background. The yellow background will disappear when the final closing prices are recorded.

Finally, if you do enable the "Colored Prices" option for a SharpChart, here are the rules that we use:

* If the previous day's closing value is less than or equal to the closing value for the current day, draw the current day's candlestick in black.
* If the previous day's closing value is more than the closing value for the current day, draw the current day's candlestick in red.

Notice that these rules are subtly different from the rules for determining whether to draw a filled candlestick or a hollow candlestick. Those rules (stated in the first paragraph above) rely on the relationship of the opening price for the current day to the closing price of the current day. These subtle differences can lead to what I call "oxymoronic" candlesticks -- candles that are colored bullishly, but filled bearishly (i.e., a filled, black candle) or vice versa (i.e., a hollow red candle).