A candlestick summarizes everything price did during one period of a chosen timeframe: where it opened, how high and how low it traded, and where it closed. Rows of candlesticks make up the most widely used chart type in stocks, forex and crypto, because the shape of each candle shows not only the result of the period but also the fight that produced it.
How to read it
Every candlestick has two parts:
- The body is the thick rectangle between the open and the close. If the close is above the open, the candle is bullish (usually green or hollow). If the close is below the open, it is bearish (usually red or filled).
- The wicks (or shadows) are the thin lines above and below the body. The top of the upper wick is the period’s high; the bottom of the lower wick is its low.
A long body with short wicks means one side dominated. A small body with long wicks means price travelled far but ended near where it started, a sign of indecision or rejection. Single-candle shapes such as the doji, hammer and shooting star are read this way, and two- or three-candle combinations such as the bullish engulfing or morning star build on them.
Example
On a daily chart, a stock opens at $50.00, drops to $48.20 in the morning, rallies to $52.40 in the afternoon and closes at $51.80. The candle is green, with a body from $50.00 to $51.80. Its upper wick runs from $51.80 to $52.40 (0.60), and its lower wick from $50.00 down to $48.20 (1.80). The long lower wick says buyers absorbed the early selling; the short upper wick says they held most of their gains into the close.
The same day on a one-hour chart would be split into about seven smaller candles, each telling part of that story.
Common mistakes
- Reading a candle without context. The same shape means different things in an uptrend, a downtrend or a range. Check the trend and nearby support or resistance first.
- Acting before the close. A candle is not final until its period ends; a hammer can turn into a plain red candle in the last minutes.
- Ignoring size. A pattern made of tiny candles relative to recent ones carries little weight.
- Forgetting volume. A big candle on thin volume is less convincing than the same candle on heavy volume.
For a full walkthrough, read how to read candlestick charts.
Educational content — not financial advice.
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