A candlestick chart consists of many candles, each showing the open price, high price, low price and closing price, for a given period. Since the RLI is based on daily candlestick charts for the S&P 500, a single candle shows the index’s open price, high price, low price and closing price on a single trading day.
Red candles are referred to as down candles and green candles are known as up candles. Red signifies the price of the asset closed lower than what it opened at, given the period. On the other hand, green signifies the price of the asset closed higher than what it opened at in that period. In the example above, both candles experienced prices higher and lower than the closing and opening prices of the day, hence the symmetrical candles. Usually candles are not so symmetrical due to price movements in a day, some more volatile than other days.
A series of candlestick charts help traders understand what they could expect in short term price action. A series of green candlesticks signifies a bullish pattern and that the price of the asset is likely to rise. A series of red candlesticks signify a bearish pattern and hence the price is likely to fall. However, no pattern works all the time, as candlestick patterns represent potentials for price movements, not guarantees.