Candlestick charts: CandleScanner color theme

Almost all of the western literature devoted to candlesticks has simplified the analysis by limiting the candle colors to dark (black) and light (white) body. According to Seiki Shimizu, the colors of candles were originally much more complex, which he demonstrated in the example of a doji candle, in which there is only a shadow line and a line marking the opening price equal to the closing price. For more details, please refer to the book titled "The Japanese Chart of Charts" by Seiki Shimizu.

With high price volatility over short time intervals, when the price jumps, for example, by some 30 percent, some candles can look as insignificant points on the chart. The use of color immediately explains and shows the nature of the candle. In CandleScanner users can display colors of their choice in the candlestick charts using the CandleScanner Color Theme. The following colors can be displayed:

• green – long lines
• orange (dark yellow) – short lines
• blue – all kinds of spinning tops
• red – all types of doji candles

The figure below shows a candlesticks chart using the CandleScanner Color Theme. This theme is optional, and can be switched off if you prefer a simple candlesticks chart using just two colors. Notice that it makes sense to use the CandleScanner Color Theme if you want to quickly spot the difference between short/long lines and spinning tops/doji candles. For example, some doji candles are marked in blue color rather than red as was previously mentioned. This is because in fact such candles are indeed spinning tops and not doji candles, but their bodies are so small that on the chart they look as if the open and close prices are the same. Hence, most people just looking on the chart would say that they see a doji candle, although in fact it is a spinning top.

Again, the distinction as to which exact candle we have on the chart is crucial in correctly recognizing the candle pattern. CandleScanner enables the user to adjust the settings of the searching algorithms to meet specific requirements. For example, the CandleScanner algorithm searching for doji candles can be adjusted to accept small deviations from the strict doji definition which says that such candles do not have a body (open and close prices are equal). This can be helpful while dealing with larger candles. We can then define in CandleScanner to accept as doji candles such cases where body length is up to 3% of the whole candle length. Similarly, CandleScanner allows defining the threshold for long/short lines.