A white candlestick depicts a period where the security’s price has closed at a higher level than where it had opened. It is a point on a security’s candlestick chart representing a bullish period.
On some charts, an up-candlestick may be depicted as either green or black. These may be contrasted with a red candlestick, which denotes a lower closing price than the prior period.
A candlestick will show the security’s open, high, low, and close for the user-specified time period.
Candlestick charts are convenient for technical traders because they can easily display a full day’s price movement.
White candlesticks represent a positive increase in a security’s price during the observed period of time. The body of the candlestick will typically be displayed in white on a candlestick series chart to show that the net result of the period’s price action was up. In some technical charting systems, the trader may have the option to choose a specified color, such as blue or green, to represent price gains.
Typically, a candlestick will show the security’s open, high, low, and close for a specified time period (e.g., weekly, daily, hourly, etc.). The high and low will be shown by the two wicks on each end of the body. The body comprises the distance between the period’s open and closing prices. Thus, candlestick marks show the range of prices that the security has reported through a single period.
Image by Julie Bang (C) Investopedia 2019
Candlestick charts are convenient for technical traders because they can easily display a full day’s price movement. Generally, the default colors for candlestick charts will be either white/green (UP) and red/black (DOWN), though, nowadays, charting packages offer the trader the option to customize the color schemes to their specifications.
Red/black candlesticks are the opposite of white candlesticks. They represent a downward movement for the day. In a red/black candlestick, the closing price of a security is reported as lower than the opening price.
The last possibility for charting a period’s price action is where the open and close prices are identical. This is called a doji and is graphically portrayed by a dash, signifying that the charted security’s opening price is equal to its closing price.
Most charting software allows you to change the colors of candlesticks, but the most commonly used colors are white/black/green-filled or hollow and red-filled or hollow, Each color conveys a different meaning:
White/Green/Black Filled Candlesticks occur when the close is greater than the prior close but lower than the open.
White/Green/Black Hollow Candlesticks occur when the close is greater than the prior close and the open.
Red Filled Candlesticks occur when the close is below the open and prior close.
Red Hollow Candlesticks occur when the close is greater than the open but lower than the prior close.
Candlestick and bar charts show the same information–open, high, low, and close–but in a different way. A bar is a vertical line, with no real body like a candlestick, consisting of a small horizontal line to the left marking the open price and a small horizontal line on the right marking the close.
Technical analysis indicators are formed from the combination of white, red, and doji candlesticks. There are many short-term and long-term formations that can be used as indicators for security investment. Technical analysts can quickly glean a lot of information from the color of a candlestick before looking at any aspects of the chart. For example, a white, green, or black filled candlestick might suggest that the price is becoming top-heavy, while a red filled candlestick represents a clear and strong downtrend. Traders may use these insights to gauge market sentiment.
Most traders use candlestick charts in conjunction with other forms of technical analysis. For example, they may gauge market sentiment using candlestick charts and then use chart patterns to identify potential areas of breakdowns or breakouts. Technical indicators can also be useful as a confirmation of market sentiment. For example, the relative strength index (RSI) may be used in conjunction with candlestick charts to show how strong a trend is in a given direction.
Below are a few candlestick patterns commonly identified on a technical analysis chart.
Ascending channel: An ascending channel is formed when a security’s price is rising. This type of channel will predominantly include white candlesticks.
Descending channel: A descending channel is formed when a security’s price is decreasing over time. This type of channel will predominantly include red candlesticks.
Bearish abandoned baby: A bearish abandoned baby pattern is comprised of three consecutive candlesticks centered with a doji. A bearish abandoned baby can signal a breakout to the downside. This pattern occurs when a white candlestick is followed by a doji above the previous day’s close and then a red candlestick with an open below the previous day’s close.
Bullish abandoned baby: A bullish abandoned baby pattern is the opposite of a bearish abandoned baby. This pattern signals a potential reversal to the upside. A bullish abandoned baby pattern will begin with a red candlestick followed by a doji below the previous day’s close and then a white candlestick with an open above the previous day’s doji open/close.