How to Read a Candlestick Chart

How to Read a Candlestick Chart

A candlestick chart visualizes price movement over a set time frame, showing the open, high, low, and close in a single bar. Each candle tells a micro-story of buyer and seller pressure, and reading them is a foundational skill for technical analysis.

Parts of a Candlestick

A standard candle has three visible elements. The body represents the range between the open and close prices. A thin line extending above and below, called the wick or shadow, shows the highest and lowest prices reached during the period. Green or hollow candles typically indicate a higher close, while red or filled candles show a lower close relative to the open.

Reading Individual Candles

A long body suggests strong conviction in one direction, while a short body signals indecision. Long upper wicks can imply rejection of higher prices, and long lower wicks suggest buyers stepped in to defend lower levels. Doji candles, where the open and close are nearly equal, often hint at a potential shift in momentum after a strong move.

Common Multi-Candle Patterns

Patterns form when sequences of candles align in ways that suggest a likely continuation or reversal. A bullish engulfing pattern, where a large green candle completely covers a prior small red candle, can signal a shift upward. Bearish engulfing works in the opposite direction. Other frequently watched formations include hammer, shooting star, morning star, and evening star patterns, each with its own implication for the next move.

Using Candlesticks Alongside Context

Candlestick signals work best when you consider the broader trend, support and resistance levels, and volume. A pattern that appears after a long move carries more weight than one forming in a flat range. Combining candles with other tools, such as moving averages or key price zones, helps avoid false signals and improves decision-making.