How to read a candlestick chart
Learning objectives
Read the four prices contained in a single candle and say what the body and wicks represen
Explain what timeframe means and why the same market looks different on different ones
Interpret candle shapes as descriptions of buying and selling pressure rather than as signals
What is a candlestick chart?
A candlestick chart is the standard way price is displayed, and each candle carries more information than a line on a chart can. Learning to read one properly is the foundation for everything else in this course.
What a single candle contains
Every candle summarises one period of trading into four prices:
- Open. Where the period started.
- High. The highest price reached.
- Low. The lowest price reached.
- Close. Where the period finished.
Two visual elements carry those four numbers:
The body runs between the open and the close. It shows where price actually settled over the period.
The wicks (also called shadows) extend from the body to the high and the low. They show the extremes price reached but didn't hold.
Colour convention is usually green or white for a close above the open, red or black for a close below. Conventions differ between platforms, so check yours once rather than assuming.
Timeframe: the same market, summarised differently
Each candle covers a period you choose. One minute, one hour, one day, one week.
This matters more than beginners expect. The market doesn't change when you change timeframe. The summary does.
A single strong daily candle looks decisive. Drop to hourly and that same day contains pullbacks, hesitation and a couple of moves that went the wrong way before resolving. Neither view is wrong. The daily compressed all of it into four numbers, and compression discards detail by definition.
Practically: match your timeframe to your trading style from lesson F1.6. A swing trader holding for two weeks who watches five-minute candles is generating anxiety, not information. A day trader reading only weekly charts has no detail to act on.
Reading the shape
Here's the frame that keeps you honest. A candle describes the balance between buyers and sellers over that period. It's a record of an argument, not a forecast of the next one.
Long body, small wicks. One side controlled the period from start to finish. Price opened, moved in one direction and finished near its extreme.
Small body, long wicks on both sides. The period was contested. Price went both ways and finished near where it started. Nothing was resolved.
Long lower wick, close near the high. Price fell during the period and was bought back before the close. Sellers pushed, and within that period they failed.
Long upper wick, close near the low. The reverse. Buyers pushed and were overcome.
That's genuinely all a candle tells you. Everything else is interpretation.
What about the named patterns?
If you look into candlesticks for any amount of time, you'll encounter names. We'll cover these in more detail in our next lesson but briefly:
A doji is a candle where the open and close are almost identical, indicating indecision.
A hammer has a long lower wick and a small body near the top.
An engulfing candle has a body that completely covers the previous one.
These names are shorthand for the descriptions above. They aren't instructions.
The thing that makes any of them worth noticing is context. A hammer at a level price has repeatedly turned from, during an active session, after an extended decline, is worth attention. The identical hammer in the middle of a quiet range is noise wearing a name.
Context does the work. The pattern is just the label.
The most important honesty point in this lesson
A candle tells you what happened. It does not tell you what happens next.
Every pattern has a failure rate, and the failure rates are high enough that no pattern is worth trading on its own. If reversal patterns worked as reliably as they appear to in textbook illustrations, everyone would trade them and the edge would disappear immediately.
Which is why candles feed into your risk framework rather than replacing it. They help you locate the level at which your idea is wrong.
Four common mistakes
Reading patterns on very low timeframes. On a one-minute chart, patterns form constantly and mean almost nothing, because the ratio of noise to signal is at its worst.
Finding patterns in hindsight. Look at any chart backwards and you will find perfect examples of every pattern, positioned exactly where they worked. This proves nothing, and it feels like proof, which makes it dangerous.
Ignoring context. Covered above, and it's the difference between a pattern being informative and being decorative.
Reading a candle before it closes. A candle mid-formation can look like anything. A perfect hammer at 14:20 can be a long red body by 15:00. Until the period ends, the candle hasn't said anything yet. Wait for the close.
Candles or line charts?
A line chart connects closing prices. It's cleaner and it's easier to see the overall shape of a move.
It also discards the highs, the lows and everything that happened within each period. That's most of the information.
For understanding a trend at a glance, a line chart is fine. For making trading decisions, use candles. The range and the struggle inside each period are exactly the parts you need.
Key takeaways
Each candle holds four prices: open, high, low and close. The body spans open to close, and the wicks show the extremes that weren't held
Changing timeframe changes the summary, not the market. A single daily candle hides everything that happened within the day
Candle shapes describe the balance between buyers and sellers during that period. They don't forecast the next one
Wait for a candle to close before reading it, and treat context as the thing that makes any pattern meaningful