How to Read Candlestick Charts
Master candlestick chart reading—the fundamental skill for technical analysis and day trading.
What Are Candlestick Charts?
Candlestick charts are the most popular method of displaying price data in trading. Developed in 18th-century Japan, they show four key price points for each time period: open, high, low, and close (OHLC).
Each "candle" represents a specific time period (1 minute, 5 minutes, 1 hour, 1 day, etc.). Day traders typically use 1-minute, 5-minute, or 15-minute candles.
Anatomy of a Candlestick
Bullish (Green/White) Candle
Price closed higher than it opened. The body (thick part) shows the range between open and close. Wicks (thin lines) show the high and low for the period.
Bearish (Red/Black) Candle
Price closed lower than it opened. The body shows the range between open and close, with wicks indicating the period's high and low.
Key Components:
- Body: The thick part showing the range between open and close prices
- Upper Wick (Shadow): Line above the body showing the period's high
- Lower Wick (Shadow): Line below the body showing the period's low
- Color: Green/white = bullish (close > open), Red/black = bearish (close < open)
What Candlesticks Tell You
Long Body
Strong buying (green) or selling (red) pressure. Price moved significantly in one direction during the period.
Small Body (Doji)
Indecision. Open and close are very close together, suggesting neither buyers nor sellers are in control.
Long Upper Wick
Price was pushed higher but sellers drove it back down. Shows rejection of higher prices (bearish signal).
Long Lower Wick
Price was pushed lower but buyers drove it back up. Shows rejection of lower prices (bullish signal).
Common Candlestick Patterns
Bullish Patterns (Reversal Signals)
Hammer
Small body at top, long lower wick. Shows buyers rejected lower prices. Bullish when found at support.
Bullish Engulfing
Large green candle completely engulfs previous red candle. Strong reversal signal.
Morning Star
Three-candle pattern: large red, small body (indecision), large green. Major reversal signal.
Bearish Patterns (Reversal Signals)
Shooting Star
Small body at bottom, long upper wick. Shows sellers rejected higher prices. Bearish at resistance.
Bearish Engulfing
Large red candle completely engulfs previous green candle. Strong reversal signal.
Evening Star
Three-candle pattern: large green, small body (indecision), large red. Major reversal signal.
Support and Resistance
Candlesticks are most powerful when combined with support and resistance levels:
- • Support: Price level where buying interest prevents further decline. Look for bullish reversal patterns here.
- • Resistance: Price level where selling interest prevents further rise. Look for bearish reversal patterns here.
- • Breakouts: When price breaks through support/resistance with strong volume, it often signals a new trend.
For more on these concepts, visit our Trading Glossary.
Important Warnings
- • No pattern works 100% of the time. Candlestick patterns show probabilities, not certainties.
- • Context matters. The same pattern can have different meanings depending on trend, volume, and location.
- • Confirm with other indicators. Don't trade based on patterns alone. Use volume, trend, and support/resistance.
- • Practice extensively. Pattern recognition takes time to develop. Use paper trading to practice without risk.
Next Steps to Master Charts
1. Study charts daily. Spend time each day reviewing charts and identifying patterns.
2. Start with simple patterns. Master basic single-candle patterns before moving to complex multi-candle formations.
3. Paper trade. Practice identifying and trading patterns with virtual money before risking capital.
4. Keep a journal. Document patterns you spot and their outcomes to learn what works.
Continue Learning
Disclaimer
This article is for educational purposes only. Candlestick patterns do not guarantee trading success. Always use proper risk management and consult qualified professionals. See our full disclaimer.