Candlestick charts are the most popular chart type among traders worldwide. Understanding how to read candlesticks is fundamental to technical analysis. This complete guide teaches you candlestick basics and essential patterns.
What Is a Candlestick Chart?
A candlestick chart displays price movement over time using individual "candles" that show four key data points for each time period:
- Open: The price at the start of the period
- High: The highest price during the period
- Low: The lowest price during the period
- Close: The price at the end of the period
Together, these are called OHLC data.
Anatomy of a Candlestick
Each candlestick has two main components:
The Body
The rectangular section between the open and close prices. The body shows the trading range between opening and closing.
- Green/White body: Close higher than open (bullish)
- Red/Black body: Close lower than open (bearish)
The Wicks (Shadows)
The thin lines extending above and below the body.
- Upper wick: Extends from body to the high price
- Lower wick: Extends from body to the low price
Wicks show price rejection—where price traveled but couldn't sustain.
Reading Candlestick Information
Bullish Candlestick
When close is higher than open:
- Body is typically green or white
- Buyers controlled the period
- Price moved up overall
Bearish Candlestick
When close is lower than open:
- Body is typically red or black
- Sellers controlled the period
- Price moved down overall
Body Size Meaning
- Large body: Strong conviction in that direction
- Small body: Indecision or balance between buyers and sellers
Wick Length Meaning
- Long upper wick: Sellers rejected higher prices
- Long lower wick: Buyers rejected lower prices
- No wicks: Strong directional movement
Essential Single Candlestick Patterns
Doji
Appearance: Very small or nonexistent body
Meaning: Indecision. Open and close are nearly equal, showing balance between buyers and sellers.
Trading significance: Potential reversal signal, especially after a trend.
Hammer
Appearance: Small body at top, long lower wick (2x body length minimum), little or no upper wick
Meaning: Sellers pushed price down, but buyers recovered. Bullish reversal signal.
Best context: After a downtrend
Inverted Hammer
Appearance: Small body at bottom, long upper wick, little or no lower wick
Meaning: Buyers pushed price up but couldn't hold. Potential bullish reversal when confirmed.
Best context: After a downtrend
Shooting Star
Appearance: Small body at bottom, long upper wick, little or no lower wick (same shape as inverted hammer)
Meaning: Buyers tried to push higher but failed. Bearish reversal signal.
Best context: After an uptrend
Hanging Man
Appearance: Small body at top, long lower wick (same shape as hammer)
Meaning: Despite the bullish-looking shape, it's a warning sign in uptrends.
Best context: After an uptrend—signals potential reversal
Marubozu
Appearance: Full body with no wicks
Meaning: Extreme conviction. Price moved in one direction the entire period.
Trading significance: Strong continuation signal in the direction of the candle
Essential Multi-Candlestick Patterns
Engulfing Patterns
Bullish Engulfing:
- First candle: bearish (red)
- Second candle: bullish (green), body completely engulfs first candle's body
- Signal: Strong bullish reversal
Bearish Engulfing:
- First candle: bullish (green)
- Second candle: bearish (red), body completely engulfs first candle's body
- Signal: Strong bearish reversal
Morning Star (Bullish Reversal)
Three-candle pattern:
- Large bearish candle
- Small-bodied candle (gap down preferred)
- Large bullish candle closing above midpoint of first candle
Signal: Downtrend exhaustion, bullish reversal
Evening Star (Bearish Reversal)
Three-candle pattern:
- Large bullish candle
- Small-bodied candle (gap up preferred)
- Large bearish candle closing below midpoint of first candle
Signal: Uptrend exhaustion, bearish reversal
Three White Soldiers
Three consecutive bullish candles:
- Each opens within previous body
- Each closes progressively higher
- Minimal upper wicks
Signal: Strong bullish momentum, often signals trend continuation
Three Black Crows
Three consecutive bearish candles:
- Each opens within previous body
- Each closes progressively lower
- Minimal lower wicks
Signal: Strong bearish momentum, often signals trend continuation
Reading Candlesticks in Context
Individual patterns mean little without context. Always consider:
Trend Direction
- Bullish patterns at the bottom of downtrends are more significant
- Bearish patterns at the top of uptrends are more significant
- Patterns in the middle of trends are less reliable
Support and Resistance
Candlestick patterns at key levels carry more weight:
- Hammer at major support = stronger buy signal
- Shooting star at resistance = stronger sell signal
Volume
High volume confirms pattern significance. A bullish engulfing on heavy volume is more reliable than one on light volume.
Timeframe
Higher timeframes produce more reliable signals:
- Daily chart patterns > 15-minute chart patterns
- Weekly patterns are even more significant
Common Candlestick Reading Mistakes
Mistake 1: Trading Patterns in Isolation
A hammer means nothing without context. Always consider the trend, location, and confirmation.
Mistake 2: Ignoring Confirmation
Wait for the next candle to confirm the pattern before trading. A hammer followed by a bearish candle is not bullish.
Mistake 3: Seeing Patterns Everywhere
Not every candlestick formation is a tradeable pattern. Be selective about which patterns you act on.
Mistake 4: Forgetting the Bigger Picture
A bullish pattern on the 5-minute chart means little if the daily chart is strongly bearish.
Practice Reading Candlesticks
Reading candlesticks is a skill that improves with practice. Effective practice methods:
Historical Chart Review
Scroll through historical charts and identify patterns. Note what happened after each pattern.
Covered Chart Exercise
Cover the right side of a chart. Identify patterns and predict direction before revealing the outcome.
Trading Simulation
Use platforms like ChartMini to practice pattern recognition in real-time trading scenarios. The bar-by-bar progression mirrors live trading decision-making.
Candlestick Chart Settings
Timeframe Selection
Choose timeframes based on your trading style:
- Scalping: 1-minute to 15-minute candles
- Day trading: 5-minute to 1-hour candles
- Swing trading: 4-hour to daily candles
- Position trading: Daily to weekly candles
Color Customization
Most platforms allow custom colors. Choose colors that are easy on your eyes for extended viewing:
- Common: Green/Red
- Alternative: White/Black
- Personal preference matters
Summary
Candlestick charts provide rich information about price action and market psychology. Understanding how to read individual candles and recognize common patterns is essential for technical analysis.
Key points to remember:
- The body shows the open-to-close range
- Wicks show price rejection
- Patterns require context (trend, location, volume)
- Confirmation before trading
- Practice builds pattern recognition skill
Start recognizing candlestick patterns in your trading practice. With ChartMini's historical simulation, you can accelerate pattern recognition by experiencing years of market data in hours.
Master candlestick reading, and you'll have a foundational skill that serves your entire trading career.