How to Read Candlestick Charts

What a candle actually draws

One candle compresses four numbers about a fixed period of time - a minute, an hour, a day, depending on the timeframe you choose:

• Open: the first price of that period.
• Close: the last price of it.
• High: the furthest price reached upward.
• Low: the furthest price reached downward.

The coloured body is the distance between the open and the close. The thin lines above and below it - the wicks, or shadows - are the high and the low.

If price closed higher than it opened, the candle is bullish, usually green. If it closed lower, it is bearish, usually red. That is the whole alphabet. There is no information in a candle beyond those four numbers.

The body and the wick tell different stories

The body tells you where the market settled. The wick tells you where it tried to go and failed.

A long body with short wicks means one side controlled the period from start to finish. A small body with a long wick means price travelled a long way and came back - the other side pushed it back.

That single distinction is more useful than most of what gets taught about named patterns. A long lower wick means selling ran, then met buying that returned price to where it started. It predicts nothing. It is simply an accurate description of what happened.

The timeframe changes the candle completely

A candle is not a fixed fact. It is a product of the frame you are looking through. Twenty-four hourly candles collapse into one daily candle.

So an alarming red candle on a five-minute chart may be nothing more than a small wick inside a rising daily one. Before asking what a candle means, ask which timeframe it belongs to.

This is a common source of confusion: someone reads an analysis built on the daily chart, then looks at their own screen set to five minutes, and sees an entirely different market.

Patterns: what is worth knowing, and what is not

There are dozens of named patterns, and most of what is published about them is marketing. Three of them describe something real:

• Doji: the open and close are almost identical, so the body is nearly a line. The period ended with neither side resolving it - hesitation, not a signal.
• Hammer: a small body at the top with a long wick below. Price fell a long way, then recovered before the close.
• Engulfing: one candle's body completely covers the previous candle's body. The new period undid what the last one did.

Now the sentence that matters most on this page: all of these are descriptions of what already happened, not predictions of what comes next. A hammer does not mean price will rise. It means sellers pushed, buyers answered, and the period ended there.

You will find the same hammer before a reversal, and before a decline that simply continues. Anyone who shows you ten hammers that worked without the twenty that did not is teaching you nothing.

How we use them here

On this account, candles are a reading tool, not a decision tool. They show where movement was violent and where it was quiet, and where price stalled more than once - which is genuinely useful when choosing where a stop loss goes.

But what decides the month is not how well you read candles. It is position size and stop distance. You can read a chart beautifully and still lose the account on one oversized trade. That is not a warning we invented; it is on the closes page of this site, in numbers.

Start on the daily timeframe. One candle a day is enough to learn to see, and it is too slow to tempt you into pressing a button.