Candlestick chart

A candlestick chart is a price chart made of candles placed side by side in time order. One candle covers one period of the chosen timeframe and records four prices: open, high, low and close.

A line chart shows only the close of each period. A candlestick chart also shows the path inside it – how far price moved in each direction and who was in control at the end.

• Open – the first traded price of the period.
• Close – the last traded price of the period.
• High and low – the highest and the lowest price reached in the period.
• Body – the thick part between the open and the close.
• Wicks – the thin lines above and below the body. The upper wick ends at the high, the lower wick at the low. They are also called shadows.

• Color – a rising candle (close above open) is usually green or white. A falling candle (close below open) is usually red or black.
• Body size – a long body means price moved far in one direction and stayed there. A short body means the open and the close were near each other.
• Wick length – a long upper wick shows that price went up and was pushed back. A long lower wick shows that price went down and was bought back.
• Position of the close – a close near the high is read as strength, a close near the low as weakness.
• Sequence – one candle says little. Read several in a row: are the highs and lows moving up, down or sideways?

The timeframe sets how much time one candle covers. On a daily chart one candle is one day. On a 5-minute chart it is five minutes.

The same market looks different on different timeframes: one daily candle contains 24 hourly candles in a market that trades around the clock. Higher timeframes show the trend. Lower ones show the detail inside it. Many traders pick the direction on a higher timeframe and the entry on a lower one.

Candlesticks come from Japan, where rice traders used them in the 18th century. The method is linked to the trader Munehisa Homma. Steve Nison brought it to Western traders in 1991 with the book Japanese Candlestick Charting Techniques – hence the name Japanese candlesticks.

Certain shapes repeat and have names. A doji has almost no body. A hammer has a small body and a long lower wick. A bullish engulfing is a two-candle pattern.

The full list with pictures is in the candlestick patterns cheat sheet. A pattern matters only in context: at a level of support or resistance and in line with the trend.

• Acting on a candle before it closes – the shape can change completely in the last minutes of the period.
• Reading one candle without the trend – the same shape means different things at a top, at a bottom and in the middle of a range.
• Ignoring the timeframe – a long wick on a 1-minute chart is noise, on a weekly chart it is an event.
• Comparing candles across markets by size alone – what counts is the size relative to the recent candles of the same chart.