How to Read a Candlestick Chart

A candlestick is the most information-dense way to display price. Each candle represents one slice of time — a minute, an hour, a day — and encodes four prices: the open, the high, the low, and the close. Learning to read that shape is the foundation of technical analysis.

Anatomy of a candle

The rectangular body spans the open and close. The thin lines above and below — the wicks or shadows — mark the highest and lowest prices reached during the period. A bullish candle (often green or hollow) closes above its open; a bearish candle (often red or filled) closes below it. The body shows who finished in control; the wicks show how far the losing side pushed before being beaten back.

What the shape tells you

A long body with short wicks signals strong, decisive momentum. A small body with long wicks signals indecision — buyers and sellers fought to a near draw. A long lower wick shows buyers rejected lower prices; a long upper wick shows sellers rejected higher prices. Reading these tugs-of-war is far more useful than memorising names.

Common single and double patterns

A doji, with almost no body, marks indecision and potential reversal. A hammer — a small body with a long lower wick after a downtrend — suggests buyers are stepping in. An engulfing pattern, where one candle's body completely covers the previous one, signals a possible momentum shift. None of these are guarantees.

A candlestick pattern is a sentence, not a paragraph. Read it in the context of the trend and the level it forms at, or it means very little.

Context is everything

The same pattern means different things in different places. A hammer at a well-tested support level is far more meaningful than one in the middle of a range. Always combine candlestick reading with structure — trend, support and resistance — rather than trading shapes in isolation.