How to Read Candlestick Charts

What a candlestick chart shows

A candlestick chart plots price over time as a row of candles. Each candle covers a fixed period, such as a minute, an hour or a day. You pick that period, called the timeframe, in your charting platform.

Every candle summarises the period with these prices:

• Open: the first traded or quoted price of the period
• High: the highest price reached
• Low: the lowest price reached
• Close: the last price when the period ended

A line chart usually joins only the closing prices. A candle also shows how far price travelled during the period and where it settled. That is why most traders use candles.

The parts of a candle

Body

The body is the thick rectangle between the open and the close. A tall body means price moved a long way from open to close. A short body means the open and close were near each other, even if price swung widely in between.

Shadows (wicks)

The thin lines above and below the body are shadows, also called wicks. The top of the upper shadow marks the high. The bottom of the lower shadow marks the low. A long shadow shows that price reached that level during the period but did not stay there.

Colour

Colour tells you the direction from open to close:

Colours are a display setting, not a standard. Check your platform's settings before you read a chart. In MetaTrader, for example, you can change the colours of rising and falling candles yourself.

A drawn example chart

The chart below is a drawing, not real market data. Hollow bodies [ ] are rising candles. Filled bodies [#] are falling candles. Higher on the drawing means a higher price.

How to read each candle:

• A: a falling candle. It closed below its open. The long lower shadow shows that price traded well below the close before coming back up within the period.
• B: a doji. The open and close sit almost on the same level, with shadows on both sides. Neither side moved the close far from the open.
• C: a tall rising candle with very small shadows. Price moved steadily from open to close and finished near the high.
• D: a falling candle with a long upper shadow. Price went above C's high, failed to stay there, and closed below its open.

The candles describe what happened in each period. They do not tell you what the next candle will do.

Where candlesticks come from

Candlestick charting began with rice traders in Japan during the Edo period. Merchants at the Dojima rice market in Osaka recorded opening, closing, high and low prices. Munehisa Homma, a rice trader, is often credited with linking those prices to the mood of buyers and sellers. Western traders learned the method much later, mainly through the books of Steve Nison. Many pattern names, such as doji, keep their Japanese roots.

Why patterns need context

A candlestick pattern is a single candle or a short sequence of candles with a recognised shape. A shape on its own carries little information. Read it together with:

• Trend: the same candle can mean different things after a long rise, after a long fall, or in a sideways range. A hammer and a hanging man have the same shape. Only their position in the trend separates them.
• Location: a pattern near a level where price has turned before draws more attention than one in the middle of a range. See technical analysis and chart patterns.
• Timeframe: a pattern on a daily chart covers far more trading than the same shape on a minute chart. Shapes on very short timeframes appear and vanish often.
• Candle size: compare a candle with recent candles. A long body only stands out if the candles around it are smaller.
• Session and news: around scheduled economic releases, candles can stretch suddenly and form shapes that reflect a short burst of orders, not a lasting change. See fundamental analysis.

Common failure modes

Reading candles goes wrong in predictable ways:

• Reading a candle before it closes. Until the period ends, the body and shadows keep changing. A hammer in the middle of the hour can become a plain falling candle by the close.
• Ignoring the trend. Treating every doji as a turning point leads to many false readings, because dojis also appear inside ongoing trends.
• Seeing patterns everywhere. If you look hard enough, almost any chart contains a named pattern. That alone does not make it meaningful.
• Different data, different candles. Brokers and data providers use different price feeds and session times. The same day can draw slightly different candles on different platforms.
• Gaps and thin markets. Forex runs almost around the clock, so gaps between candles are rare there. Weekend gaps and quiet hours can still distort shapes.
• Treating patterns as forecasts. Patterns describe past price action. They often fail, and price can move against the reading straight away.

Leveraged forex and CFD trading can lose money fast, including more quickly than you expect when a pattern fails. Read risk management before you trade any chart reading, and practise on a demo account first.

Overview of candlestick patterns

Each pattern has its own guide. The full list is also on candlestick patterns.

For terms used here, see the trading glossary and trading basics.

Frequent questions

What does a single candle tell me?

It shows the open, high, low and close for the chosen period. It tells you how far price moved and where it settled, not where it will go next.

Do green and red always mean up and down?

Usually, but colours are a platform setting. Check which colour your chart uses for rising and falling candles.

Which timeframe should a beginner read?

There is no correct timeframe. Longer timeframes show fewer, slower-changing candles. Shorter ones show more noise. Compare the same chart on several timeframes to see the difference.

Are candlestick patterns reliable?

No pattern works every time. Patterns describe past price action and often fail, so read them with trend, location and risk control in mind.

Can I practise reading candles without risking money?

Yes. A demo account or a chart without open positions lets you study candles. See MetaTrader 4 or MetaTrader 5 for how the charts work.