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by Naveen SundarUnderstanding Colors in Stock Charts – Green and Red Candlesticks Explained
Stock charts are a useful way of viewing the historical price movement of a security. The visual ups and downs of the line in the chart convey meaning in a way that a table full of numbers can not.
One quick glance at a chart can give you a meaningful perspective on the stock’s past performance and serve as a useful data point in your analysis.
A typical line stock chart in StockMarketEye looks like this:
The upper portion of the chart is called the Price chart.
In the example above, the blue line shows the closing values of the stock. Moving the mouse over the chart will display the chart cursor. The details of the day under the cursor are shown in the top line of the chart area.
The lower portion of the chart is the Trading Volume Chart. It provides crucial information about the quantity of the asset traded during each specific period. The taller the bar, the more volume there was on that day.
The colors in the Volume chart also have meaning. The most common ones are the red and green bars, but we can also find black volume bars.
- The Green Volume Bar means that the stock closed higher on that day versus the previous day’s close.
- The Red Volume Bar at the bottom of a volume chart signifies the stock closed lower on that day compared to the previous day’s close.
- The Black Volume Bar means either that the stock closed at the same price that day as it did the day before or that the chart does not have the previous day’s closing price to compare with (such as in the first volume bar in the chart).
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Understanding Red and Green Colors in the Price Chart
In the Price chart, both the Candlestick and Open-High-Low-Close (OHLC) chart styles convey an extra meaning when compared to a simple line chart.
Instead of a single point (i.e. the closing price), the day’s activity is shown as a symbol, in which the day’s 4 data points (i.e. the open, high, low, and closing prices) are drawn.
The red and green versions of the Candlestick and OHLC chart styles convey extra meaning through the colors.
This same meaning is also visible in the monochrome version of these chart styles, but some investors find the green and red versions help them to interpret the meaning faster.
Red and Green Candlesticks Meaning
- A green candlestick means that the opening price on that day was lower than the closing price on that day (i.e., the price moved up during the day). This means the price of the traded asset went up over the time interval represented by the candlestick.
- A red candlestick means that the opening price was higher than the closing price that day (i.e., the price moved down during the day). This signifies that the price of the asset being traded decreased during the timeframe indicated by the candlestick.
The next chart shows the “Candlestick Green/Red” stock chart type in action.
Compare that with the monochrome version of the same chart. A green candlestick is equivalent to an open candle of the monochrome “Candlestick” chart type; a red candlestick is equivalent to a filled candle.
When Colors Differ Between the Price Chart and the Volume Chart
Although both the Price chart and Volume chart can use green and red to convey meaning, the meaning of the colors is slightly different in each of these chart types. Sometimes the candlestick or OHLC’s color will be different from the volume bar’s color.
For example, if the stock finished higher than the previous day, the volume bar will be green. But on the same day, if the stock moved lower from the opening price, the candlestick would be colored red.
This situation is not that uncommon.
For example, if there was a gap up at the open (because of positive company news, analyst recommendation, etc), but the stock moved lower from that point throughout the day yet stayed above the previous day’s closing price, the candlestick would be colored red, but the volume bar would be green.
Start Interpreting Stock Charts Through Colors
Colors can be useful to help convey extra meaning in stock charts. Knowing how each color is used in the different parts of the stock chart will help you interpret their meaning faster and get more out of the chart.
FAQ
What does a solid green candlestick mean?
A solid green candlestick on a stock chart typically represents a bullish price movement. It indicates that the closing price of the stock is higher than the opening price within a specific time period, such as a day or a week. This positive price action suggests that there is buying pressure and optimism in the market.
What does a red candle mean?
A red candle on a stock chart typically signifies a bearish price movement. It means that the closing price of the stock is lower than the opening price within a specific time period. This downward price action suggests that there is selling pressure in the market and negative sentiment among traders.
Do you buy stocks when they’re red or green?
Buying stocks when they’re red or green depends on your strategy, risk tolerance, and market conditions. Some prefer buying during green candlesticks, indicating a bullish trend, while others look for buying opportunities during red candlesticks, capitalizing on price dips or oversold conditions.
What do red and green volume bars mean in stocks?
Red and green volume bars in stock charts indicate the trading volume associated with red (bearish) and green (bullish) candlesticks.
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